The Largest Move-in Site at Dunchon Jugong... The Complex Circumstances of Banks

The construction of the 'Olympic Park Foreon' project in Dunchon-dong, Gangdong-gu, Seoul, which had been halted due to escalating construction cost disputes ahead of next month's move-in, is set to resume. The photo shows the Olympic Park Foreon project site in Gangdong-gu on the 25th. Photo by Jo Yongjun

As the move-in date for Olympic Park Foret on (formerly Dunchon Jugong), considered the largest reconstruction complex since the era of Dangun, approaches, banks' calculations regarding balance payment loans have become complicated. In the case of Dunchon Jugong, where the estimated loan amount reaches up to 8 trillion won, banks see it as a lucrative source of income. However, due to the financial authorities' strengthened household debt management policy, the total loan volume cannot be significantly increased until the end of the year. With the loan freeze continuing through the year-end, if loans are granted only to specific complexes, fairness controversies may arise, making banks hesitant to take the lead.

According to the banking sector on the 7th, KB Kookmin Bank opened the door to group loans for Dunchon Jugong. KB Kookmin Bank announced that it plans to handle balance payment loans within a limit of 300 billion won for Dunchon Jugong. It applies a Loan to Value (LTV) ratio of 70% and a Debt Service Ratio (DSR) of 40% per borrower. The loan interest rate is 4.8% per annum (based on a 5-year fixed rate).

A KB Kookmin Bank official said, "The 300 billion won limit is limited to the Dunchon Jugong project, and even if the balance payment loan is taken next year after this year, there is currently no decision on whether the loan limit will increase."

The move-in period for Dunchon Jugong is from the 27th of this month to March next year, meaning that even if balance payment loans are executed next year when the annual loan limit is newly set, it will proceed within the 300 billion won limit. Although KB Kookmin Bank has opened the door to balance payment loans for Dunchon Jugong, which has attracted market attention, it plans to manage the total debt volume by offering limited loans.

In response, other commercial banks have also started to gauge the situation. Banks such as Shinhan and Hana said, "We are currently reviewing it," and "We are currently adjusting interest rates and limits." Since KB Kookmin Bank has opened the way, other commercial banks will also participate in group loans but plan to proceed restrictively within the remaining household loan limits.

Typically, balance payment loans for prime locations like Dunchon Jugong, where collateral is solid, are considered a valuable source of profit for banks. Most banks enter balance payment loans even if it means competing by lowering interest rates, but with financial authorities strongly regulating household loans, banks have no choice but to play it safe despite having guaranteed valuable profit sources right in front of them. Moreover, with various loan restrictions such as limits on non-face-to-face loans, there is concern about backlash from demanders if loans are granted only to specific complexes.

The outstanding household loan balance of the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) as of the end of October was 732.0812 trillion won, an increase of 1.1141 trillion won compared to the end of September (730.9671 trillion won). Although the increase has significantly decreased compared to August (9.6259 trillion won) and September (5.6029 trillion won), considering that housing transactions peaked in July and August, some say it is too early to be reassured until November.

An official from a commercial bank said, "Since KB Kookmin Bank has opened the way, it is highly likely that other banks will enter under similar conditions. However, with non-face-to-face loans blocked, if balance payment loans are granted to specific complexes, there could be backlash from loan demanders, and since it is not possible to significantly increase loans until the end of the year, the situation is quite cautious," he conveyed the atmosphere.