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Easing Regulations to Revive Property Market Mulled

Posted July. 16, 2010 14:01,   


The Strategy and Finance Ministry, the Land, Transport and Maritime Affairs Ministry, and the Financial Services Commission will release this month supplementary measures to stimulate real estate transactions.

The measures are expected to be improvements from those the government released April 23.

With the business slump affecting the real estate market, President Lee Myung-bak is known to have told an economic contingency meeting last month, “Address the transactional inconvenience of real estate buyers!”

In the measures announced April 23, the government eased regulations on property loans only if two conditions were met: a net area of 85 square meters or less and a value of not more than 600 million won (499,500 U.S. dollars). The latest proposal suggests easing the regulations if one of the two conditions is met.

Easing the regulations means providing loans to a non-homeowner or a homeowner who wants to buy a home from someone who cannot move into a new place because he or she cannot sell his or her property or providing a guarantee by Korea Housing Finance Corp. for the amount exceeding the limit of the debt-to-income ratio.

The government will also provide loans to a household up to 200 million won (166,500 dollars) by using one trillion won (832.6 million dollars) from the National Housing Fund by year’s end. Another possible measure is giving loans for “jeonse,” a lump sum rental deposit used to rent a place for an agreed period, from the housing fund.

Critics say the measure will have a limited effect on the market and thus urge easing of the loan-to-value and debt-to-income ratios, but the government has not reached a consensus yet.

Real estate experts say reviving the sluggish market for real estate transactions should be the top priority. They say the government can stimulate the paralyzed market with sophisticated policies that allow the buying and selling of homes while maintaining price stability.

Because of this, voices are growing that financial regulations such as the loan-to-value and debt-to-income ratios must be flexibly eased. “The regulations on debt-to-income ratio aimed at stabilizing housing prices in (Seoul’s) Gangnam area need to be eased,” said Sohn Jae-yeong, a real estate professor at Konkuk University in Seoul.

Lee Yong-man, a real estate professor at Hansung University in Seoul, said, “Rather than regulating unilaterally, the government should apply the regulations depending on the situation such as the probability of repaying the money, the direction of prices, and the possibility of default.

“The debt-to-income ratio must remain intact and only the loan-to value ratio, which is now a little low, must be flexibly raised.”

Opponents to deregulation warn, however, that premature easing could bring adverse effects.

Kim Seon-deok, director of Construction Industry Strategy Research, said, “Debt-to-income regulations should not be eased just because of the housing market. Since it takes time until the real effects are felt, easing regulations excessively to stimulate transactions could lead to inflation.”