Concerns Over Dunchon Jugong Final Payment Crisis... "Exceptions Should Be Applied to Limit Reductions" [Real Estate AtoZ]

"Dunchon Jugong Final Payment Difficult... Move-in Delayed"
Final payment amount 3 trillion won, primary financial final loan 950 billion won
Concerns over reduction in secondary financial loans
"Exceptions needed to prevent damage from sudden loan cuts"
"No alternatives besides final payment loans"

On the 16th, 'Olympic Park Foreon (Dunchon Jugong Reconstruction)' in Dunchon-dong, Gangdong-gu, Seoul is about to be occupied. Photo by Seungwook Park

"Since each bank has a set loan limit, the person who secures the balance loan even a day earlier is the winner."
"With the government's loan regulations, there is no guarantee that the secondary financial sector will not reduce loan volumes following the primary financial sector."

As the largest reconstruction complex since the era of Dangun, the 'Olympic Park Foreon (Dunchon Jugong Reconstruction)' in Dunchon-dong, Gangdong-gu, Seoul, is approaching its move-in date, concerns about a balance payment crisis have spread among prospective residents. Although the five major banks?Kookmin, Shinhan, Hana, Woori, and Nonghyup?have confirmed handling balance loans ahead of the move-in on the 27th, the loan limit is only about 950 billion KRW, which is far short compared to the total balance payment of 3 trillion KRW.

This complex consists of 12,032 households, and under normal circumstances, there would be fierce competition among banks to attract balance loans. However, since the total household loan volume of each bank has already exceeded the financial authorities' target, the loan limit for Olympic Park Foreon's balance loans could not be set sufficiently. Some argue that balance loans, which are used after purchasing a home, should be excluded from the household loan volume regulations imposed by the authorities.

Difficulty in Paying Balance May Delay Move-in

The head of real estate agency A located in Dunchon-dong, Gangdong-gu, Seoul, stated on the 18th, "Since the loan limits of the five major commercial banks are fixed, it is difficult to get loans here, so we are guiding clients to places like local credit unions where loans are still available." He predicted, "If money cannot be borrowed quickly, a move-in delay will occur."

The balance loan amounts from the five major commercial banks are insufficient to cover the entire balance payment for this complex. Due to the financial authorities' household debt management policy, the total limit for commercial banks is set at 950 billion KRW, but the total balance payment that prospective residents must pay is 3 trillion KRW. Prospective residents must pay the balance to begin moving in.

There is even a perception that loans from the secondary financial sector might be cut off at any time. The head of real estate agency A said, "Due to the government's household loan management policy, I believe the secondary financial sector may also set loan limits at any time," adding, "Saemaeul Geumgo has already reduced individual loan limits."

Saemaeul Geumgo reduced the maturity of balance loans from 40 years to 30 years on the 11th, effectively reducing loan limits. This is seen as a measure to align with the financial authorities' household debt management policy. According to the Financial Services Commission, household loans in the secondary financial sector increased by 2.7 trillion KRW last month, a sharp rise compared to the previous month's decrease of 300 billion KRW.

It is also difficult to pay the balance using jeonse (long-term deposit lease) because even jeonse loans are conditionally approved. The head of real estate agency B near Dunchon-dong said, "Many places only conditionally allow jeonse loans, so jeonse tenants cannot move into this complex," adding, "It will take at least until next year to receive jeonse deposits and move in."

As it becomes harder to prepare the balance payment, there is analysis that the move-in for Olympic Park Foreon may be delayed. Park Won-gap, senior real estate expert at KB Kookmin Bank, said, "The ways to prepare the balance are balance loans and funds through jeonse, but since both are blocked, the move-in will be delayed," adding, "Then prospective residents will have to pay interest on the delayed move-in and management fees."

"Exceptions Should Be Applied to Prevent Damage from Sudden Regulations"

On the 16th, a real estate agency near Dunchon-dong, Gangdong-gu, Seoul is disclosing property listings. Photo by Park Seung-wook

Experts suggest that complexes about to pay balances should be excluded from the authorities' household loan volume regulations. Ko Jong-wan, director of the Korea Asset Management Research Institute, said, "Prospective residents in the pre-sale market largely rely on loans to buy homes," adding, "If loans suddenly become difficult when only the balance remains to be paid, these people lose alternatives. Closing the door to loans is no different from telling them to turn to private lenders or loan sharks."

Ko added, "Since the pre-sale system has a set process for paying contract deposits, interim payments, and balance payments, the government can predict and manage the demand for balance loans to some extent. Allowing balance loans does not make household debt management difficult, and prospective residents have not suddenly bought new homes," emphasizing, "From that perspective, instead of tightening loans indiscriminately, exceptions should be made within household debt management principles."

Kim Hyo-sun, senior real estate expert at NH Nonghyup Bank, also said, "Prospective residents are not prepared for the worst-case scenario of not being able to prepare the balance," adding, "In this case, some easing of balance loans is necessary." However, he explained, "Because Olympic Park Foreon is a mammoth complex that has attracted great attention, even if the authorities propose easing measures, they will be cautious due to criticism that benefits are being concentrated on this complex."