Relaxation of Local Development Bond Purchase Criteria... Partial Exemption from Purchase Starting Next Year

[Asia Economy (Hongseong) Reporter Jeong Il-woong] Starting next year, the criteria for purchasing regional development bonds will be relaxed.

According to Chungnam Province on the 19th, the Ministry of the Interior and Safety will raise the coupon rate of regional development bonds from January next year and implement partial purchase exemptions starting in March.

This measure is being implemented in accordance with the Ministry of the Interior and Safety’s ‘Improvement Plan for Regional Development Bonds and Urban Railway Bonds’ and will be applied uniformly nationwide.

Regional development bonds are a system that requires purchasing a certain percentage of bonds when buying a car, signing a contract, or obtaining a permit, and the principal and interest can be repaid after 5 years (maturity) from purchase.

However, due to the financial burden, most people immediately pay a certain cost and sell the bonds at a discount right after purchasing them.

Accordingly, the Ministry of the Interior and Safety plans to raise the coupon rate of the bonds reflecting the continuous increase in the base interest rate, while partially exempting the obligation to purchase bonds for new and transfer registrations of non-commercial vehicles and contract signings, thereby reducing the economic burden on small business owners and young adults starting their careers.

First, from January next year, the coupon rate (interest rate) of regional development bonds will be raised from the current 1.05% to 2.5%. This aims to alleviate the heavy discount sale burden and interest losses caused by the low coupon rate compared to the recently sharply increased market interest rates (4~5%).

For example, the increase in the coupon rate reduces the burden by about 60,000 KRW when immediately selling a regional development bond purchased for 1,000,000 KRW.

In particular, from March next year, the obligation to purchase regional development bonds will be exempted when registering new or transferred non-commercial passenger cars with engine displacement between 1000cc and less than 1600cc, easing the purchase burden for young adults starting their careers.

Reflecting this, when purchasing a 1598cc compact car for 20,000,000 KRW, previously about 800,000 KRW worth of regional development bonds had to be compulsorily purchased, but from March next year, purchasing regional development bonds will no longer be required.

Additionally, the obligation to purchase regional development bonds will be exempted for contracts ranging from 1,000,000 KRW to less than 20,000,000 KRW for construction, goods, and services, easing the burden on small business owners and self-employed individuals.

An official from the province said, “The improvement of the mandatory purchase system for regional development bonds will have a significant perceived effect on low-income groups such as small business owners and young adults starting their careers,” adding, “We hope that economic burdens for residents’ livelihoods will be alleviated amid the difficult economic situation caused by inflation and high interest rates.”