"With Only 600 Million Won, Seoul Pre-Sales Out of Reach" Concerns Rise... Loan Regulations Put a Damper on Construction Industry

The 600 Million Won Cap on Final Payment Loans May Shrink the Subscription Market
Increased Funding Burden for Builders Leads to Domino Effect: Fewer Pre-Sale Plans and Construction Starts
Potential Benefits for Small and Mid-Sized Builders and Provincial Pre-Sale Markets

There are predictions that the government's recently announced 'mortgage loan regulations' will put a damper on the construction industry. With the limit on final payment loans now capped at 600 million won, the number of potential homebuyers who can apply for new housing has sharply decreased, making it difficult to guarantee strong sales. Even now, construction companies are facing a survival crisis due to unsold housing inventory, and their housing supply plans are now under serious threat. Although the government has introduced strong regulations to curb soaring housing prices caused by a lack of housing supply, critics argue that these measures could trigger a vicious cycle by further blocking the path to new housing supply.

On July 1, major securities firms reported that the government’s recent loan regulations are highly likely to have a negative impact on the pre-sale housing market in the Seoul metropolitan area. Park Sera, a researcher at Shin Young Securities, stated, "Regardless of sale price or location, these measures will generally have a negative effect on private sector housing supply," adding, "Even developers planning to launch projects in prime locations may feel burdened." Park also noted, "Even Gangnam will be affected."

According to the government’s strengthened loan regulations, buyers of newly pre-sold homes in Seoul and other metropolitan areas will be able to receive a final payment loan secured by the property only up to 600 million won (with interim payment loans as the sole exception).

This means that for the remaining amount above 600 million won, buyers must secure the funds themselves. In major areas of Seoul where the standard price for an 84-square-meter apartment exceeds 1.5 billion won, buyers will have to pay several hundred million won in cash for the final payment. While the government claims the regulation is intended to "protect genuine homebuyers," in reality, the market is now accessible only to those with significant cash reserves.

If demand for new housing applications shrinks, construction companies will face emergencies in their new housing supply schedules. In the case of "pre-sale projects," where construction costs are funded by pre-sale payments, weak application results mean developers cannot secure liquidity and may be unable to proceed with the project. Eugene Investment & Securities Research Center stated, "As private sector demand for new housing in the metropolitan area contracts, some projects will inevitably face construction delays or deteriorating sales prospects," adding, "Cash flow risks for construction companies may increase." Lee Kyungja, Kim Jaewoo, and Heo Jaejun, researchers at Samsung Securities, predicted, "While the immediate impact on construction company earnings may be limited, if the pre-sale market weakens, mid- to long-term earnings volatility will increase."

Securities firms commonly point out that in a situation already facing structural problems such as a shortage of supply and rising housing prices in the metropolitan area, financial regulations could become yet another cause of 'supply contraction.' There are growing concerns that this could choke off the supply of housing in the metropolitan area and further exacerbate long-term price instability.

Some analysts suggest that stricter loan regulations in the metropolitan area could revive the real estate market in provincial regions. Lee Eunsang, a researcher at NH Investment & Securities, said, "Pre-sales and construction starts may increase in lower- and mid-tier areas of the metropolitan region," and added, "Small and mid-sized companies are expected to benefit more than large companies." Samsung Securities analyzed, "Considering the dispersal of demand to regions without loan regulations and the policy of purchasing unsold homes, risks in provincial areas may be alleviated."