Searching Far and Wide for 'Apartments Under 600 Million'... In High Demand Due to Loan Easing

Eased Limits on Bogeumjari Loan for Youth and Newlyweds
Rapid Rise in Jeonse Prices Boosts Homebuyers Without Property
Loans Available Only Up to 600 Million KRW... Becoming Scarcer

A view of the apartment complexes in the Gangnam area as seen from the Lotte World Tower Sky Observatory in Songpa-gu, Seoul. Photo by Dongju Yoon doso7@

[Asia Economy Reporter Moon Jae-won] A man in his 30s, Mr. A, who works in an office, has recently been checking real estate listings through applications from time to time to find a small apartment priced around 500 million KRW on the outskirts of Seoul. After seeing the jeonse (long-term lease) price of the apartment he rented last year with a deposit of 300 million KRW rise to 400 million KRW in less than a year, he is hurrying to buy his own home. Mr. A said, "I heard that the loan limit for the Bogeumjari Loan will increase starting next month, so I am preparing for an 'all-in' purchase," adding, "It is becoming difficult to just watch the rapidly rising sale and jeonse prices."

According to the real estate industry on the 24th, the Financial Services Commission plans to raise the per-household loan limit for the Bogeumjari Loan from 300 million KRW to 360 million KRW starting next month to help low-income and actual homebuyers, targeting young people and newlyweds. This has caused the popularity of mid- to low-priced apartments under 600 million KRW in Seoul to soar.

The Bogeumjari Loan is a fixed-rate mortgage loan with an interest rate in the 2% range, provided to households with a house price of 600 million KRW or less and an income of 70 million KRW or less (85 million KRW for newlyweds). In response to criticism that it has become difficult for actual buyers to purchase homes due to continuous tightening of loan regulations, the government introduced a 40-year maturity product to reduce the monthly principal and interest burden.

The problem is that this loan is only available for purchasing homes priced at 600 million KRW or less. While house prices have surged, the loan criteria remain unchanged, causing the value of homes priced under 600 million KRW to skyrocket. For example, in Hong Eun-dong, Seodaemun-gu, Seoul, a 56㎡ unit (exclusive area) in Punglim 1st Complex was traded for 500 million KRW as recently as February, but the current asking price has risen to the Bogeumjari Loan limit of 600 million KRW. The asking price has increased by 100 million KRW in just four months. A nearby real estate agent said, "It is now difficult to find small, old apartments on the outskirts priced in the 500 million KRW range."

In Seoul, apartments in relatively affordable districts such as Nowon, Dobong, Geumcheon, and Guro have also seen prices surge due to the 'balloon effect' continuing since last year. The remaining apartments priced around 500 million KRW on the outskirts are often far from subway stations, making transportation inconvenient, or are small, old apartments. These were available for 300 to 400 million KRW as recently as last year. For instance, a 59.98㎡ unit in Daewoo, Jeongneung-dong, Seongbuk-gu, was traded for 540 million KRW on the 3rd, up 182 million KRW from the lowest price of 358 million KRW in June last year.

However, since the third phase of new town pre-subscription will begin in earnest next month and there is a possibility of house price adjustments due to future interest rate hikes, some suggest reconsidering 'all-in' purchases. Ham Young-jin, head of the Big Data Lab at Zigbang, said, "For those with a low chance of winning a subscription or who have house prices around the amount of their jeonse deposit, considering a purchase now with the new 40-year maturity loan might be an option. However, it is time to think carefully about taking on excessive loans to buy poor-quality housing without redevelopment prospects."