Faced with soaring housing prices, South Korea on Wednesday announced another set of anti-speculation measures that center on increasing the housing supply and strengthening the supervision of home-backed loans.
In the measures unveiled by the Ministry of Finance and Economy, the government will increase by 125,000 the number of houses to be built in new towns in Seoul and adjacent areas over the next five years to a total of 867,000 homes.
The government also plans to advance the timetable for the construction of new satellite cities in order to help quickly stabilize apartment housing prices.
It further plans to strengthen the supervision of home-backed loans and lower the so-called loan-to-value (LTV) and debt-to-income (DTI) ratios, thus making it difficult for people to take out loans to buy second homes for investment purposes.
"It is highly risky to buy a new home at present using borrowed money," Finance Minister Kwon O-kyu said at a press conference. He added it would be incorrect to assume that housing prices will continue to rise.
The LTV, the ratio of the fair market value of a residence to the value of the loan for financing the purchase, will be uniformly cut to 40 percent from the current 40 percent to 60 percent.
In the case of non-banking institutions, the ratio will be lowered to 50 percent from the current 70 percent, according to the plans.
Also, the DTI ratio, currently applied for purchases of homes valued at 600 million won (US$637,000) or more in some so-called speculative zones, will be applied to all such areas. Speculative zones are where housing prices have consistently risen more sharply than the national average.
A surge in mortgage loans, accused of contributing to the rise of housing prices, has spawned concern that a sudden collapse of housing prices could spark a financial crisis.
Data from the central bank showed that mortgage loans grew by 2.7 trillion won in October from a month earlier, the fastest pace since May, when they advanced by 3 trillion won.
Home-backed loans extended by local banks amounted to an outstanding 209.7 trillion won as of the end of October, data showed.
The plans also call for the government to share the cost of building infrastructure facilities for residential blocks to help lower the sale price for apartments, and increase loans to low-income earners.
Despite a series of anti-speculation measures, housing prices in Seoul and its vicinity have risen sharply, resulting in an outcry from the public and the political sector as homes became more and more unaffordable for most people.
Housing prices gained 1.5 percent in October from the previous month, the largest climb since October 2003, according to the Bank of Korea.
Last week, the central bank froze its key interest rate at a five-year high of 4.5 percent, citing an economic slowdown and tamed inflation, but expressed concerns about rising housing prices.
Also, the government will increase home-purchase financing to low-income earners and state-run guarantees to them. The state-run Korea Housing Finance Corp. will lower interest rates on mortgage loans by 0.15 percentage point, according to the ministry.
Along with the new measures, the government will continue anti-speculation measures such as heavier transaction taxes for owners of multiple homes and redemption of windfall gains from the reconstruction of dilapidated homes.
It also plans to crack down on possible tax evasion and other breaches of the law in areas where property prices have risen sharply.
"If anti-speculation demand comes under control and a supply of new homes take place, there is a good chance that stability will be restored in the housing market," Kwon said, adding that officials will meet every week to follow market developments.
The new real estate policies come at a time when the South Korean economy, Asia's fourth largest, is facing a slowdown.
The economy grew 5.8 percent in the first half, but the growth rate fell to 4.6 percent in the third quarter and is expected to drop further in the last three months of the year.
Seoul, Nov. 15 (Yonhap News)
Seoul to boost housing supply, tighten lending rules |
