[Practical Finance] With Loan Regulations Tightening the Gate... Should You Catch the Last Ride on Income-Generating Real Estate?

Including Balance Loan in DSR Calculation... Loan Regulations to Tighten from January Next Year
Less Regulation and Transferable Officetel Subscriptions Surge
Complexes Like Cheongna Hanyang Sujain The Destin Scheduled for Sale Within the Year Draw Attention

Exterior view of officetels in Daehyeon-dong, Seodaemun-gu, Seoul (Photo by Ryu Taemin)

[Asia Economy Reporter Ryu Tae-min] As the government announces plans to tighten loan regulations starting January next year, demand from buyers for the last pre-regulation sale complexes is increasing. In particular, with the likelihood of stricter regulations such as sales and resale restrictions on officetels and residential hotel facilities, a surge of ‘last-minute demand’ for income-generating real estate is expected to intensify toward the end of the year.

According to the ‘Strengthened Household Debt Management Plan’ announced by the Financial Services Commission last month, starting January next year, balance payment loans will also be included in the calculation of the individual Debt Service Ratio (DSR). The DSR is the ratio of the total principal and interest repayment amount of all household loans divided by annual income, and if the repayment amount exceeds 40% of annual income, loans cannot be granted. Currently, a DSR of 40% applies individually when taking out mortgage loans over 600 million KRW for home purchases in regulated areas or credit loans exceeding 100 million KRW. However, after the regulation takes effect, if the total loan amount exceeds 200 million KRW, the regulation will apply regardless of whether the property is in a regulated area or not.

Crowds Flocking to the ‘Last Ride’ Before Regulations

With the announcement of stricter regulations, attention is focused on the last sale complexes within the year where loans for interim and balance payments can still be obtained. Especially for officetels, which are relatively free from loan regulations and allow resale, over 100,000 applicants are flocking to new sales. For example, on the 2nd of this month, the ‘Hillstate Gwacheon Cheongsayeok’ officetel in Byeolyang-dong, Gwacheon-si, Gyeonggi Province, attracted 124,426 applicants for 89 units, recording an average competition rate of 1,398 to 1.

The residential hotel facility sales market shows a similar trend. According to the industry, a bill to ban the sale of residential hotel facilities altogether has been proposed and is currently under review by the National Assembly’s Land, Infrastructure and Transport Committee. Concerns that product supply itself may be cut off have led to increased demand to catch the ‘last ride,’ with subscription competition rates reaching hundreds to one. For instance, the Lotte Castle Le West subscription in Magok District, Gangseo-gu, Seoul, attracted 575,950 applicants, recording an average competition rate of 657 to 1.

Notably, residential hotel facilities are free from various real estate regulations, unlike apartments and officetels. Both apartments and officetels are considered housing and are subject to various taxes such as comprehensive real estate tax, acquisition tax, and capital gains tax, as well as loan restrictions. For new sales, subscription eligibility conditions are strict. Even if selected, the sale rights cannot be resold to others until ownership registration is completed. In contrast, residential hotel facilities fall under the Building Act rather than the Housing Act, allowing them to avoid these regulations. They are not counted toward the number of houses owned and have no resale restrictions on sale rights. They are also exempt from loan regulations such as Loan-to-Value (LTV) limits.

Sale Complexes Attract Attention Ahead of Regulation

In line with the hot sales momentum, construction companies are moving quickly. Hanyang will sell ‘Cheongna Hanyang Sujain Destin’ in Block B5-2 of the Cheongna International Financial City in Incheon this month. It is a residential officetel with three buildings, up to 47 floors above ground, and 702 units of 84㎡ exclusive area.

HDC Hyundai Development Company also plans to sell the residential officetel ‘Cheongna International City I-Park’ in the Cheongna district. This officetel complex will consist of two buildings from six basement floors to 42 floors above ground, with 1,020 units ranging from 24 to 84㎡ exclusive area.

Hyundai Asan’s residential officetel ‘Dongtan Hyundai Millema,’ located in 86-8 Bansong-dong, Hwaseong-si, Gyeonggi Province, is also notable. It consists of 95 units ranging from 33 to 75㎡ exclusive area, from four basement floors to 15 floors above ground.

Hyundai Engineering is accepting subscriptions this month for the residential hotel facility ‘Hillstate Changwon Central,’ being built in 74-3 and 74-4 Sangnam-dong, Seongsan-gu, Changwon-si, Gyeongsangnam-do. The complex will have two buildings from six basement floors to 46 floors above ground, with a total of 296 units in two types of exclusive areas: 88㎡ and 102㎡.