Price Ceiling May Expand to All Homes

Borrowers are likely to face a harder time taking out loans from financial institutions using the housing they own as collateral.

Prices of new apartments are expected to drop significantly because the price ceiling system on new apartment prices will also be applied to others as well.

Vice Finance Minister Park Byung-won held an emergency meeting on real estate affairs on Tuesday, involving officials from related departments such as the Ministry of Construction and Transportation, Ministry of Planning and Budget, and the Ministry of Environment. The meeting discussed ways to stabilize the property market, with the framework of the above-mentioned new measures.

The government plans to release a comprehensive real estate policy after consultation with the ruling party on November 15. One new measure under consideration is expanding the DTI (debt-to-income) ratio system, which limits the amount of mortgage loans according to the homebuyer’s annual income, to bring previously owned homes also under the regulation.

Introduced on April 5 this year, the DTI rule had only been applied to housing loans for homes priced at a market value of more than 600 million won, and which were purchased less than three months ago.

However, the expansion of the regulation is expected to meet with heavy resistance, as it will mean residents of speculative areas who have lived in homes worth 600 million won or more for a long period of time will have their loan sizes limited based on their income level.

The government has also decided to bring down to 50 percent the LTV (loan to value) ratio for speculative zone apartments set by non-banking players. The sector, including mutual savings banks or credit unions, has been offering higher LTVs compared with banks or insurance firms.

At the same time, the authorities plan to widen the price ceiling system on new apartment prices to cover not only public housing provided by Korea National Housing Corporation, but also private housing. In this case, the prices of newly constructed private apartments will not be able to go beyond a certain limit, as they will be linked to the prices of building sites and construction costs.

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