[Exclusive] Personal Loans and Parental Support for Home Purchases Halved... Sharp Decline in Submission of Funding Plans

Comprehensive Analysis of Seoul's Funding Plans Over the Past 3 Years
Soaring Interest Rates and Transaction Freeze Lead to Disappearance of Yeongkkeuljok
Credit Loans Decrease by 81.9% Year-on-Year
Private Loans from Acquaintances and Parents Also Drop to One-Quarter
Only 4,347 Cases of Home Purchase via Gifts and Inheritance
Funding Plans Plummet to Around 30,000 Cases

[Image source=Yonhap News]

[Asia Economy Reporters Chae-eun Koo, Min-young Kim] The number of "Yeongkkeuljok" (people who borrow every possible loan, including unsecured loans and parental financial support, to buy a house) who gathered all possible funds to purchase homes has halved compared to the previous year. This is according to a comprehensive analysis of the "Seoul Housing Acquisition Fund Procurement and Move-in Plan (Fund Procurement Plan)" obtained by Rep. Kim Doo-kwan of the Democratic Party from the Ministry of Land, Infrastructure and Transport on the 22nd.

As the real estate market entered a transaction freeze, the number of people submitting fund procurement plans also dropped by half due to the reduced home buying activity. The Yoon Seok-yeol administration's easing of holding tax burdens such as the comprehensive real estate tax led to a sharp decline in the number of people acquiring homes through inheritance and gifts. The contraction in buying demand caused by interest rate hikes, recognition of peak housing prices, and real estate market downturn significantly reduced the number of people trying to secure their own homes.

(Source: Office of Kim Du-kwan, Democratic Party of Korea, Ministry of Land, Infrastructure and Transport)

According to the "Seoul Region Housing Acquisition Fund Procurement and Move-in Plan" submitted to Rep. Kim’s office by the Ministry of Land, Infrastructure and Transport, the number of cases where unsecured loans from primary financial institutions were checked under the "borrowed funds" category in the first half of this year (until June 30) totaled 2,373, a sharp 81.9% decrease compared to 13,125 cases in the previous year. Considering this is a statistic for the first half of the year, the number of buyers who took out unsecured loans to purchase homes has dropped by more than half compared to the previous year.

The number of cases checked under "other borrowed funds," which refers to private loans from parents, relatives, or acquaintances, was only 5,576, about a quarter of the 20,122 cases in 2021. The "other borrowed funds" category is used when borrowing housing purchase funds from parents, relatives, or acquaintances, with parental loans typically making up the majority.

The number of respondents who reported purchasing homes with "other loans," meaning loans from non-primary financial institutions such as loans secured by other real estate, loan companies, capital firms, or local cooperative loans, was 3,617, down 67% from 11,011 cases a year earlier. The disappearance of Yeongkkeuljok, who led the panic buying wave and drove up Seoul housing prices, has been confirmed through the fund procurement plan statistics.

[Image source=Yonhap News]

Park Won-gap, Senior Real Estate Specialist at KB Kookmin Bank, said, "The MZ generation has high financial intelligence and will not try to buy homes while prices are falling," adding, "There is also a learning effect from Yeongkkeuljok who caught the market peak last year around them." Seo Jin-hyung, professor at Gyeongin Women's University and co-representative of the Fair Housing Forum, explained, "While some buyers with purchasing power have already completed their home purchases in the market, the biggest factor is the reduced expectation of future housing price increases."

Additionally, the number of respondents who reported acquiring homes through gifts or inheritance was only 4,347 in the first half of this year, about a quarter of the 19,244 cases in 2021. A Ministry of Land official explained, "Since the new government announced policies to ease holding taxes such as the comprehensive real estate tax, there has been a stronger tendency to hold onto homes rather than gifting or inheriting them to children or grandchildren early." Professor Seo added, "This reflects the market's expectations of the Yoon Seok-yeol administration's capital gains tax relief policies."

Meanwhile, as the transaction drought in Seoul intensified since last year, the number of fund procurement plan submissions, which must be submitted before purchasing a home, also sharply decreased. As of the first half of this year, the number of fund procurement plan submissions in Seoul was 37,563, about a quarter of the 123,305 cases in 2021. The number of people submitting fund procurement plans decreased in line with the transaction freeze in Seoul apartments.

Seoul Housing Acquisition Fund Procurement and Move-in Plan (Fund Procurement Plan)

With the decline in housing purchase demand, the transaction freeze in Seoul is worsening. According to the Seoul Real Estate Information Plaza, as of this date, apartment sales transactions in Seoul for July totaled 605 cases. Compared to 4,679 apartment sales transactions in July last year, this is an 87% sharp drop. Considering there are about ten days left until the reporting deadline, it is highly likely that this will fall below the record low monthly transaction volume of 819 cases recorded in February this year. The transaction freeze continues amid concerns over housing price declines due to interest rate hikes and economic recession.