[10·26 Debt Measures] Impact on Real Estate Market... Loan Restrictions Cause Transaction Stagnation and Jeonse Rental Refugees

Financial Services Commission Chairman Ko Seung-beom is delivering opening remarks at the 'October Household Debt Management Measures Party-Government Consultation' held at the National Assembly on the 25th. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Kim Min-young] The real estate market, already sluggish due to fatigue from soaring housing prices, is expected to freeze further following the government's additional household debt management measures announced on the 26th. However, there are concerns that these measures could raise the barrier for low-income and low-credit individuals to own homes, thereby stimulating the jeonse and monthly rent markets and potentially causing a vicious cycle of rising housing prices in the long term.

Ham Young-jin, Head of the Zigbang Big Data Lab, said, "With financial institutions also reducing loan limits under the household debt management plan, coupled with interest rate hikes, real estate purchasing sentiment will be constrained," adding, "Combined with accumulated fatigue from rising housing prices, there is a high possibility that buying demand will decrease." Yoon Ji-hae, Senior Researcher at Real Estate R114, also predicted, "If the loanable amount decreases, there will be an effect of demand withdrawal. However, as one-homeowners are also blocked from trading up, transactions will not occur, leading to a phase of price stagnation."

According to the Seoul Real Estate Information Plaza, as of the previous day, the number of apartment transactions reported in Seoul this month was 744, a 71% decrease from 2,633 transactions last month. Since the reporting deadline for real estate sales transactions is 30 days after the contract date, the total transaction volume may increase, but the downward trend is clear. Buying sentiment is also noticeably shrinking. The Seoul Apartment Sales Supply-Demand Index announced by the Korea Real Estate Board was 106.6 as of the 18th, down 0.3 points from last week’s 101.9. It has been declining for six consecutive weeks. Although it still exceeds the baseline of 100, if this trend continues, the market is likely to shift to a seller’s disadvantage soon.

However, experts say it remains uncertain whether the transaction slowdown will lead to a drop in housing prices. This is because although loan execution has become difficult, suppressing speculative buying, the waiting demand for purchases has not been resolved. Researcher Yoon explained, "Mortgage loans have been completely banned for homes priced over 1.5 billion KRW, but even after that, transactions decreased without housing prices falling." According to KB Kookmin Bank’s monthly housing price trend time series statistics, the average apartment sale price in Seoul in October steadily rose to 1.21639 billion KRW.

Some express concerns that if the total debt service ratio (DSR) for secondary financial institutions is lowered by 10 percentage points, low-credit and low-income real demanders may be pushed into the jeonse and monthly rent markets. Park Won-gap, Senior Real Estate Specialist at KB Kookmin Bank, warned, "Due to DSR regulations, real demanders with insufficient financial capacity will inevitably be affected," adding, "If they remain in the rental market, a vicious cycle could repeat where rising jeonse and monthly rent prices also stimulate sales prices."

Ko Jong-wan, Director of the Korea Asset Management Corporation, said, "If people who cannot buy homes turn to jeonse, it causes jeonse prices to rise," adding, "Eventually, rising jeonse prices will lead to higher housing prices."

With jeonse prices soaring, the required funds have increased while loan limits have decreased, raising the possibility of more monthly rent refugees seeking monthly rentals instead of jeonse. Ham Young-jin of Zigbang Big Data Lab said, "As sales demand decreases, some demand shifts to rentals, putting pressure on the jeonse market. However, with jeonse loan regulations also in place, those restricted from jeonse loans may choose monthly rent with a deposit, causing a monthly rent shift phenomenon," expressing concern, "If landlords’ demands for increased jeonse deposits cannot be easily met, tenants may have no choice but to reluctantly opt for monthly rent with a deposit."