"September Loan Regulations? ... Buying More Apartments in Seoul" [Real Estate AtoZ]

Seoul Apartment Transactions Surpass 5,000
"Stress DSR Introduction Likely to Have Minimal Impact on Transaction Volume"
"Supply Shortage and Jeonse Price Increase Boost Buyer Sentiment"

Even if the second phase of the stress Debt Service Ratio (DSR) is applied this September, it is expected that the volume of apartment transactions in Seoul will continue to increase steadily. Typically, tightening funding sources dampens buying sentiment. However, recent analyses suggest that the anxiety of those buying homes due to unstable housing supply and those switching from jeonse (long-term lease) to purchase amid rising jeonse prices will have a stronger effect.

Seoul Apartment Transactions Surpass 5,000 Units... "Loan Regulations like Stress DSR Will Have Minimal Impact on Transaction Volume"

According to the Korea Real Estate Board's 'Real Estate Statistical Information System' on the 8th, the number of apartment transactions in Seoul in May was recorded at 5,182 units, surpassing 5,000 units for the first time since August 2021. The volume of apartment transactions in Seoul has been steadily rising since recording 1,790 units in December last year. The industry considers a monthly transaction volume of around 5,000 to 6,000 units as an average level.

As transaction volume increases, apartment prices are also rising. According to the Real Estate Board's 'Weekly Apartment Price Trends,' Seoul apartment prices in the first week of this month rose by 0.20% compared to the previous week, marking the 15th consecutive week of increase. The rate of price increase has also gradually grown, exceeding 0.10% in the second week of last month to 0.15% (third week of last month), 0.18% (fourth week of last month), and 0.20% (first week of this month).

The recent rise in Seoul apartment prices is largely due to the government's sudden postponement of the implementation of the 'second phase stress DSR' and the introduction of policy products such as special loans for newborns, which have improved conditions for purchasing homes. By delaying the implementation of policies that reduce loan limits, household loans from the five major banks increased from 708.5723 trillion won at the end of last month to 710.7558 trillion won as of the 4th of this month. The Financial Services Commission postponed the introduction of the stress DSR second phase from July to September on the 25th of last month.

Kim In-man, director of the Real Estate Economy Research Institute, explained, "The government's postponement of the stress DSR regulation signals that it may delay regulations again in the future," adding, "In the current unstable situation with concerns about housing supply shortages, transaction volumes are expected to increase to some extent."

"Despite Loan Regulations, Housing Supply Shortage and Rising Jeonse Prices Keep Buying Sentiment Alive"

However, given that apartment transactions and prices are on the rise, it is anticipated that the impact of the stress DSR second phase introduction in September will not be significant. Kim Deok-rye, senior research fellow at the Korea Housing Industry Research Institute, said, "There are many variables affecting the real estate market, such as policies and the global environment," adding, "While stress DSR can act as a constraint on real estate transactions, the presence of policy products like special loans for newborns means that transactions cannot be assumed to decrease simply because it is introduced."

DSR is the ratio of loan principal and interest payments to annual income, with bank loans currently regulated at 40%. Stress DSR is a system that calculates loan limits by adding a certain level of additional interest rate when calculating the DSR.

When the second phase of stress DSR is applied, loan limits will be reduced accordingly. Previously, if the annual income was 50 million won, one could borrow up to 377 million won for a 40-year maturity, installment repayment type mortgage loan with a variable interest rate. However, from September, the loan limit will decrease by 20 million won to 357 million won.

Song Seung-hyun, CEO of Urban and Economy, expressed concern, saying, "Even if the government regulates loans, there are many factors stimulating buying sentiment," and "assuming house prices continue to rise, the introduction of stress DSR could even attract investment demand into the sales market."

Kim In-man of the Real Estate Economy Research Institute added, "Recent anxiety about the real estate market has permeated the market," explaining, "Anxiety due to housing supply shortages and rising jeonse prices is stimulating purchase demand. Under these circumstances, transaction volumes will steadily increase at least until this year's Chuseok holiday."

Kwon Young-sun, a real estate analyst at Shinhan Bank, said, "People who have not been able to buy homes are choosing to purchase rather than continue with jeonse due to the steep rise in jeonse prices," adding, "In this situation, even with loan regulations like stress DSR, it will be difficult for transaction volumes to decrease significantly."