Subscription War Intensifies Under Stricter Government Mortgage Regulations [Practical Asset Management]

Still, There Are 'Camel Apartments' That Pierce the Needle's Eye for Homebuyers
Even with New Homes, Buyers Must Raise More Funds Themselves
Affordable Apartments Expected to Gain Popularity
Public Housing Supply in 3rd New Towns Also Worth Considering

# Office worker Kim Yeonsu (pseudonym) is facing a dilemma over applying for an apartment subscription. After becoming independent, Kim has remained without a home and raised three children, accumulating a subscription score of over 70 points, which is considered high enough to be within reach of winning a new apartment in the Gangnam area. With a solid income, Kim also assumed there would be sufficient borrowing capacity. However, with the sudden implementation of new mortgage loan regulations this week, Kim has had to rethink financing plans. As a last resort, borrowing a large sum from parents or acquaintances is now being considered as an option.

# Lee Eonsu (pseudonym), who secured a semi-jeonse apartment in a new city near Seoul after getting married, is also recalculating finances. Lee believed that purchasing a newly built apartment in Seoul would be helpful for asset building, especially when considering a future sale. Lee was planning to take a chance on special supply opportunities, even if it meant stretching finances, but the new loan regulations have disrupted the funding plan.

With tightened loan conditions, homebuyers now have to overhaul their subscription strategies. In the Seoul metropolitan area and regulated zones, mortgage loans are now capped at 600 million won. Multi-homeowners are not eligible for any home mortgage loans at all. To obtain a mortgage, existing homeowners must sell their current property within six months and move into the new home.

Seoul Apartment. Yonhap News

While interim payment loans are not subject to the new regulations, final balance loans at the time of move-in are now capped at 600 million won, just like regular mortgages. This applies to all apartment complexes that announced tenant recruitment after June 28, when the new rules took effect. In addition, phase 3 of the Total Debt Service Ratio (DSR) was implemented this month, further reducing loan limits for most borrowers. The government's message is clear: 'Gap investment,' or buying a home with a tenant's deposit, is no longer allowed, and people should abandon hopes of making money through excessive leverage. Amid these stringent financial regulations, experts advise genuine homebuyers to focus on apartments with lower sale prices.

End-users turn to price-capped apartments

With the new regulations increasing the amount buyers must raise on their own to purchase a new home, apartments with lower sale prices are expected to become more popular. In particular, price-capped apartments built on public land have already attracted many end-users even before the new loan regulations. According to recent data from market research firm Zigbang, the average first-priority subscription competition rate for 22 price-capped complexes was 26.2 to 1. In contrast, the rate for 50 non-capped complexes was about 4 to 1, showing a significant difference. For example, in May, Dongtan 2 New Town's 'Dongtan Kkumui Sup Jayeon & Daesang' received 12,315 applications for 294 available units.

Among the price-capped apartments being offered this month, 'Daeyami Station Kumkang Penterium Lake Foret' in the Gunpo Daeyami Public Housing District, Gyeonggi Province, stands out. The complex consists of five buildings with two basement levels and up to 27 floors, totaling 502 units, of which 452 are available for general sale.

Gyeonggi Housing & Urban Development Corporation is offering 'Godeok Jayeon & Haus D' in the Pyeongtaek Godeok District A4 block. The complex will have seven buildings, from one basement level to 23 above-ground floors, and a total of 517 units in 84 and 98 square meter configurations. KCC Construction is building Opus Hangang Switzen in Gimpo Gochon, with nine buildings ranging from two basement levels to 25 above-ground floors, totaling 1,029 units, all in the 84 and 99 square meter mid-to-large type. An industry insider commented, "Given the difficulties in securing funds due to loan regulations, the advantage is being able to purchase at a reasonable price," adding, "Demand for price-capped apartments is expected to remain strong in the second half of the year."

How about public housing supply in major 3rd New Town areas?

It is also worth considering public housing supply in major areas such as the 3rd New Towns. Korea Land & Housing Corporation (LH) plans to supply around 7,700 units in the third quarter of this year. This month alone, 1,776 public housing units and 401 Newlywed Hope Town units will be available in Namyangju Wangsuk District. In Namyangju Jinjeop 2 District, a total of 1,175 units will be supplied, including 255 Newlywed Hope Town units. In Guri Galmae Station District, 1,182 Newlywed Hope Town units are planned. In Hwaseong Dongtan 2 District, 610 public rental units with a six-year conversion option will be supplied for the first time. This system, introduced last year, allows tenants to rent for six years and then choose whether to purchase the unit.

Next month, subscription applications are scheduled for Uijeongbu Ujeong District (538 public housing units) and Gwacheon Juam District (686 Newlywed Hope Town units). In September, supply will include Wonju Musil District (295 public housing units), Namyangju Jinjeop 2 District (405 public housing units), Ulsan Taehwagangbyeon District (277 public housing units), and Siheung Hajung District (390 Newlywed Hope Town units). Newlywed Hope Town is a type of housing for newlyweds, soon-to-be-married couples, and single-parent families among subscription savings account holders, with priority determined by factors such as income, length of residence in the area at the time of application, and number of subscription savings payments. There are income and asset criteria, and the requirements are relaxed depending on the number of children born, so it is important to carefully review the relevant announcements.

Construction site of Jamsil Leel Apartment in Songpa-gu, Seoul, this May. Photo by Yonhap News

Since the new loan regulations apply only to complexes that announced tenant recruitment after June 27, those that offered units before that date are not subject to the restrictions. Not only can buyers borrow more than 600 million won, but first-time homebuyers can also receive a loan-to-value (LTV) ratio of up to 80%. However, in highly sought-after areas such as Seoul and new towns in the metropolitan area, the number of applicants for special supply and first- and second-priority subscriptions has already exceeded the available supply, so there may not be much remaining inventory even if some units are left over.

Uncontracted or unsold units, or units left over due to detected illegal activities, can be applied for through a non-priority subscription process on the Korea Real Estate Board's Cheongyak Home platform, just like regular apartments. In regulated areas, there are restrictions on re-winning subscriptions, and those subject to these restrictions cannot apply. However, in non-regulated areas, there are no such restrictions, and even those who have previously won a subscription can apply again. Any remaining units after this process are sold through discretionary supply, where the developer can accept applications and sell the units independently.

Park Wongap, Chief Real Estate Expert at KB Kookmin Bank, said, "Even before, there was a tendency for subscription competition rates to polarize between the metropolitan area and the provinces, and even within the metropolitan area depending on the specific location. The new loan regulations are likely to intensify this phenomenon," adding, "In highly desirable areas such as Gangnam in Seoul, there are potential buyers who can secure funds on their own despite the loan regulations. As a result, the trend of 'distinguishing the real value' in the subscription market will become even more pronounced."