Experts Divided... "Protect Actual Tenants vs. Control Jeonse Prices"
Jeonse Loans Surge 14% This Year... 3.5 Times Faster Than Mortgage Growth
Government and Financial Authorities Deeply Concerned... Caution Prevails on Jeonse Loan Regulations
[Asia Economy Reporters Kiho Sung, Jinho Kim, Seungseop Song]"In the second half of this year, we have no choice but to squeeze (squeeze) jeonse loans. We will strongly manage loans for multi-homeowners or those suspected of speculation." (September 13, Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance)
"We plan to review (additional household debt measures) to ensure that actual demand borrowers are not harmed by jeonse loans and group loans." (September 16, Ko Seung-beom, Chairman of the Financial Services Commission)
As financial authorities plan to announce comprehensive household debt measures next month, whether jeonse loans will be included in the regulation has become a hot topic. Within the financial sector, opinions sharply diverge between those who argue that jeonse loans are used for gap investment (buying with jeonse) and are a cause of rising house prices, and those who believe that regulation would directly harm actual demand borrowers. With experts also divided, the government and financial authorities appear to be deliberating intensely at the final stage.
"Actual Demand Borrowers Harm" vs "Cause of Rapid House Price Increase"
As rising house prices and jeonse prices have been identified as causes of increased household loans, whether to block jeonse loans, which are currently exempt from regulation, has emerged as a key issue in additional household debt measures. While it is widely observed that financial authorities lean toward the view that there is a problem with jeonse loans, experts remain sharply divided. The biggest problem is that since there are many actual demand borrowers, regulation could potentially trigger a 'crisis.'
In fact, jeonse loans are borrowed by tenants, but the loan amount is directly deposited into the landlord's account. Since the loan is used solely for the jeonse deposit and hardly diverted for other purposes, it strongly reflects actual demand characteristics.
Professor Tae-yoon Sung of Yonsei University's Department of Economics stated, "Most jeonse loans are for actual demand borrowers," adding, "It is problematic to block loans even for those who do not have jeonse funds." He further pointed out, "If they have income and good credit, there is no reason not to provide loans." Professor Sung's view is that while the exact determination of actual demand is necessary, loans should be possible if needed and the borrower has the ability to repay.
On the other hand, some voices argue that jeonse loans, which occupy a large portion of the overall loan increase, should be regulated equally to curb the overall loan growth. Professor Sangbong Kim of Hansung University's Department of Economics said, "Jeonse loans raise jeonse prices, which in turn raise house prices," and added, "Jeonse loans should be included in the total loan volume. They are the second largest after mortgage loans, and regulation is necessary to stop the increase." He also analyzed, "For example, when someone rents out their own house as jeonse and buys another house with jeonse, it is a kind of gap investment, so it is difficult to see all as actual demand borrowers."
However, all experts agree that accurate assessment is more important than anything before the government and financial authorities announce additional household debt policies. Professor Jeonghee Lee of Chung-Ang University's Department of Economics said, "It is risky to regulate jeonse loans uniformly," and emphasized, "Regulations should target misuse beyond the original purpose of jeonse loans, and contract conditions should be well managed." Otherwise, instead of preventing speculation, innocent victims may arise.
Professor Kim advised, "Some people borrow the maximum amount of jeonse loans despite having stocks or deposit assets and invest the remaining money," and suggested, "Just as a funding plan is required when purchasing a house, a funding plan should also be obtained for jeonse loans."
While Mortgage Loans Increase by 4%, Jeonse Loans Surge by 14%
The reason financial authorities continue to deliberate on regulating jeonse loans is the steep increase in jeonse loan amounts. Jeonse loans from the five major commercial banks rose sharply by 14.02%, from 105.2127 trillion won at the end of last year to 119.967 trillion won as of the end of August. This is about 3.5 times the mortgage loan growth rate (4.14%) during the same period.
Especially with the autumn moving season approaching and jeonse prices expected to rise further, the scale of jeonse loans is likely to increase accordingly. According to KB Management Research Institute, last month’s jeonse price increase rate exceeded 1%, raising concerns about the jeonse market.
Considering the rapidly increasing loan volume, regulation of jeonse loans has become inevitable following mortgage loans, but financial authorities are hesitant to make a quick decision. There is concern that in trying to catch bedbugs (gap investors), they might burn down the entire house (actual demand borrowers).
Recent mentions of possible jeonse loan regulation largely stem from the practice of those with spare funds borrowing the maximum amount possible through jeonse loans and investing the remaining money in stocks or cryptocurrencies. The financial authorities' fundamental stance is that using loans for investment rather than actual demand is inappropriate.
The problem is that there is no way to verify or confirm the actual use of jeonse funds. Since jeonse loans are closely related to housing stability, tightening them could face strong criticism from politicians and ordinary citizens, which adds to the financial authorities' dilemma. A financial sector official pointed out, "If jeonse loans are regulated in a situation where rising house prices have already pushed up jeonse prices, public criticism of real estate policy failure could intensify."
Within and outside the financial sector, indirect methods such as strengthening screening through banks are being actively discussed instead of tightening jeonse loan regulations. This approach involves carefully examining during the screening process whether the borrower can afford the jeonse deposit or is using the deposit for other purposes.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
