The Korea Herald


S. Korea to reinforce rules against real estate speculation

Govt. set to unveil 21st set of measures this week, zeroes in on ‘gap investment’

By Bae Hyunjung

Published : June 16, 2020 - 17:47

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(Yonhap) (Yonhap)

South Korea is about to unveil additional regulations to curb housing prices, mainly by deterring the rampant practice of speculative buying made possible by the country’s unique jeonse lease system, officials said Tuesday.

The government will hold a ministerial meeting Wednesday under the chairmanship of Deputy Prime Minister and Finance Minister Hong Nam-ki, where the Ministry of Land, Infrastructure and Transport is to report a new set of real estate policies.

After the suggested policies are confirmed at the meeting, they will be announced as early as the same day or later this week at the latest, marking the 21st set of housing price regulations imposed under the incumbent Moon Jae-in administration.

While the details remain undisclosed, there is speculation that the new rules would tighten the government’s grip over so-called “gap investment,” a widely popular method of investment here.

Due to Korea’s unique jeonse system, which requires a lump-sum deposit instead of monthly rent, investors can purchase homes by investing relatively small sums -- the gap between the down payment and the jeonse deposit that the buyer will receive from a tenant.

This market structure, combined with the trend toward low interest rates, is seen as kindling the buying craze and consequently aggravating the housing price bubble.

To put the brakes on such practices, the government in December banned banks from extending mortgages for apartments worth 1.5 billion won ($1.24 million) or more and raised the loan-to-value ratio for houses worth 900 million won or more.

But as housing prices in Seoul and the surrounding metropolitan region continued to climb, the government has been considering lowering the price standard for LTV restrictions to 600 million won to expand the range of regulations.

According to the Korea Appraisal Board, the average apartment price in Seoul as of the second week of June posted a 0.02 percentage point rise from a week earlier. The uptrend was more conspicuous in smaller cities in Gyeonggi Province -- such as Osan, Ansan and Gunpo -- where average housing prices have climbed more than 5 percent over the past three months.

There is also the possibility that the authorities may expand the range of special regulation zones, which have so far been limited to the capital city and key designated areas such as Gwacheon, Seongnam and Suwon.

The apartments in the designated areas are to have their LTV ratio limited to 30-50 percent, depending on transaction prices, and their debt-to-income ratio limited to 50 percent.

As for areas that have seen rapid rises in apartment prices -- such as Guri and some areas of Suwon -- the government may apply enhanced loan rules by naming the areas “overheated speculative” zones.

By Bae Hyun-jung (