The Financial Services Commission announced a comprehensive financial package Thursday to stabilize the real estate market, expanding restrictions on jeonse loan guarantees to cover single-home owners who do not reside in their properties for speculative purposes. Exceptions apply in cases such as purchasing a home with an existing tenant in a land transaction permit zone. The FSC also carved out an exception allowing new jeonse loans and renewals when a lender's credit review committee determines that the reason for non-residency is clearly unavoidable.
FSC Secretary General Shin Jin-chang said at a pre-briefing Wednesday that owners who have never transferred their resident registration to the property and are renting it out to others would be subject to the regulation. "If you lived there even once and transferred your address, you are not subject to the restriction," he said.
The following is a question-and-answer session with Shin.
Q: How large is the pool of single-home owners subject to the non-resident jeonse loan restriction?
A: We have data showing that jeonse loans in Greater Seoul and regulated zones cover about 60,000 people totaling roughly 9.6 trillion won, but it is difficult to determine precisely how many of them have actually lived in those homes.
Q: When a lender's credit review committee determines that the reason for non-residency is clearly unavoidable, does the bank make that call on its own?
A: There will be individual circumstances the FSC is not aware of. Banks can exercise their own discretion.
Q: When the household debt growth cap was set at 1.5 percent this year, the goal was to bring the household loan-to-GDP ratio down to around 80 percent by 2030. If the cap is now doubled to 3 percent, can the medium- to long-term roadmap still be met?
A: Nominal growth is expected to be higher this year, which means the denominator used to calculate the household loan ratio will be larger. We do not expect this to be an obstacle to meeting the medium- to long-term target.
Q: Was the original target set too low?
A: Circumstances have changed since the 1.5 percent target was set, so it is reasonable to adjust the overall level. Housing transaction volumes rose sharply from April and May. Transactions were concentrated before May 9 as measures such as the temporary suspension of the capital gains tax surcharge on multi-home owners were announced, and credit lending increased in May and June due to asset market conditions. Insisting on 1.5 percent under these circumstances would cause inconvenience for the public.
Q: Will this package ease the "open-run" phenomenon, where people rush to secure loans on a first-come, first-served basis?
A: Now that banks — including internet banks — and second-tier financial institutions all know the policy direction of raising the growth cap, we expect that kind of rush will not happen. We will continue to monitor the situation and check what difficulties are being experienced on the ground.
Q: The Youth Future Bogeumjari Loan targets non-apartment homes priced at 400 million won or below. What was the basis for that threshold? Is there a distinction between Greater Seoul and the rest of the country?
A: There is no distinction between regions. The threshold of 400 million won for non-apartment homes was set based on prices of housing that young people prefer and on principal-and-interest payments comparable to current monthly rent levels. The idea is to let people own a home while paying roughly what they already pay in monthly rent. We looked at the value of homes with monthly rents of around 800,000 won to 1 million won ($813). A 600 million won home on a 30-year loan at current interest rates would carry a heavy repayment burden. We also factored in prices of small officetels in Seoul and Greater Seoul. Considering that young people prefer locations near subway stations, the average price comes to about 400 million won in Seoul and about 300 million won when the broader metropolitan area is included.
Q: The idea was for non-apartment homes under 400 million won to serve as a stepping stone to homeownership, but if prices are likely to fall, there are concerns that the stepping-stone role cannot be fulfilled.
A: Prices of non-apartment homes under 400 million won could decline. At this point, the broader trend seems to be a preference away from non-apartment housing. However, various measures have been taken to prevent a recurrence of jeonse fraud, and if those measures earn market confidence, there is room for the price outlook for non-apartment homes to change.
Q: The Youth Future Bogeumjari Loan seems to be a centerpiece of this package, but limiting it to non-apartment homes raises the question of whether young people are being told to live only in villas.
A: The intent is to give people paying 800,000 won to 1 million won in monthly rent the opportunity to purchase a home, without using up their first-time homebuyer eligibility. Non-apartment homes come first, but if market conditions and public response are favorable, we think apartments could be included as early as next year after consultation with fiscal authorities. Non-apartment homes are the priority for now — apartments are not excluded permanently.
Q: The temporary suspension of the equity ratio regulation for project financing may conflict with the goal of strengthening financial soundness. With the Bank of Korea in a rate-hiking cycle, is there not a risk that bad debt could grow?
A: Improving project financing soundness is what secures market confidence and enables smooth financing. A temporary suspension of the equity ratio regulation should not become an additional source of bad debt. Given that the soundness burden is relatively lighter and that accelerating housing supply is urgent, the suspension applies only to residential project sites and only for two years.
Q: There are many calls to lift the 100 million won cap on mortgage loans for living expenses, ease restrictions on loans to return jeonse deposits, and raise the Bogeumjari Loan eligibility ceiling above 600 million won in Greater Seoul.
A: It is unfortunate that people cannot borrow as much as they want, but the basic principle is to borrow only what you can repay, centered on the debt service ratio, and we cannot ignore real estate market conditions. It is not possible to accept every demand raised at public forums. Someone who is just one month past the youth eligibility age of 39 will inevitably have to understand. That said, there are policy considerations for those over 39 who are in difficult situations — policy mortgages and relaxed loan-to-value ratio requirements are available for low-income households in their 40s who do not own a home. People may argue that home prices are racing toward 900 million won while the Bogeumjari Loan only covers homes up to 600 million won, and that loan amounts should rise in line with higher prices. We are in the process of building a society where people can use debt to buy homes sustainably over the long term, with real estate market stability in mind. Many inconveniences arise in that process, and we take them seriously, but we cannot accommodate every demand.
kimstar@heraldcorp.com
