Gangnam-gu's loan index hit a record low of 29.44 percent in May — the only district in Seoul where buyers finance less than 30 percent of a purchase price — as surging home prices and tightening lending rules combine to make the area a cash-only market.

[Herald DB]
[Herald DB]

A lending regulation caps mortgage loans on homes priced at 2.5 billion won ($1.64 million) or more at 200 million won, and the share of loan financing in Gangnam has now fallen below 30 percent. Home prices have surged while total loan amounts remain capped, prompting analysts to say the Gangnam market has become the exclusive domain of cash-rich buyers.

According to the Court Registry Information Plaza, the average loan index for collective buildings — apartments, officetels and commercial properties — in Gangnam-gu stood at 29.44 in May. The loan index measures the ratio of mortgage liens registered against the transaction price; a reading below 30 means buyers are financing less than 30 percent of the purchase price.

Gangnam-gu is the only district among Seoul's 25 autonomous districts where the loan index has fallen below 30. The district's average had hovered near 40 as recently as October last year, when it stood at 39.39, before gradually declining after the Oct. 15 tightening measures — falling to 37.94 in November, 39.39 in December and 33.43 in January.

This month's reading is a record low for Gangnam-gu, falling even below levels seen during the Moon Jae-in administration when mortgage lending on high-priced homes was outright banned. When the Dec. 16, 2019, measures prohibited mortgage loans entirely on apartments priced above 1.5 billion won, Gangnam-gu's average loan index still held at 43.75 in January 2020, 41.15 in February and 51.75 in March.

At the time, a significant number of homes in Gangnam were priced below 1.5 billion won, and the debt service ratio had not yet been fully implemented. For homes under that threshold, buyers could borrow up to the full 40 percent loan-to-value ratio regardless of income, which kept the loan index at a certain level, experts say.

This year, however, the situation has reversed. Analysts say the sharp drop in Gangnam's loan share reflects the combined effect of soaring home prices and tightening lending regulations. The average home price in Gangnam-gu already exceeds 3 billion won based on the standard unit size of 84 square meters of exclusive use area.

According to KB Real Estate's May monthly time-series data, the average transaction price per pyeong (1 pyeong equals 3.3 square meters) in Gangnam-gu was 122.71 million won, putting the average price of an 84-square-meter unit at approximately 3.12 billion won. That represents a 13.9 percent increase from a year earlier, when the average stood at 2.74 billion won, and a 39.3 percent surge from two years ago, when it was 2.24 billion won.

With prices rising so rapidly, nearly every home in Gangnam has been pulled into the regulatory zone where mortgage loans are capped at 200 million won. With the debt service ratio in force and home price growth far outpacing wage growth, even high earners can no longer realistically buy in Gangnam through borrowing.

Gangnam is increasingly becoming a market for the cash-wealthy — one where entry is all but impossible without 1 billion to 2 billion won in liquid assets. "Home prices have risen too far, while individual incomes and debt service ratio limits remain fixed, so the share of cash buyers has become overwhelmingly dominant," one asset management expert said. "The market price itself has become the barrier to entry."


hss@heraldcorp.com