Real estate measures hit upon young home buyers in Seoul

Coming up with an unprecedented set of real estate speculation curbing measures last week, the government certainly sought to deter wealthy multiple home owners from monopolizing the market and to lower the entry barrier for first-time buyers.

The extended impact of the policy, however, also seemed to reach out to the cash-strapped urban-dwelling bidders in their 30s and 40s who, under the renewed mortgage loan conditions, were left with few housing alternatives.

“I would never have been able to buy a decent house within my commuting distance, had I put off my decision by another two months,” said Lee Jae-woo, a 33-year-old worker living in western Seoul.

Lee, married with child, recently purchased and moved into a small-sized apartment in Gangseo-gu in early June, after he decided he could no longer cope with the steeply increasing rate of the downtown rental deposits.

As his new home cost almost double the amount of cash he held, Lee turned to bank loans to make up for the margin -- unaware of the forthcoming government mortgage restrictions.

“I understand that the new government is trying to reduce social and economic inequality in our society and I totally support its vision,” Lee said.

“But even people like myself, who are far from affluent real estate speculators, may suffer the consequences, which I feel may be a side effect of the measures.”

The Moon Jae-in government announced last Wednesday a package of measures designating popular real estate zones as “overheated” or “bubble-prone” areas and imposing financial restrictions in house purchases in the given neighborhoods.

A pivotal part of the blueprint was to tighten the loan-to-value and debt-to-income conditions in order to curb speculative demands based on excessive loans.

LTV and DTI ratios have been tightened to 40 percent for home buyers in designated areas, regardless of types of housing, amount and maturity of their mortgages.

First-home buyers and low-income households were granted a higher 50 percent ceiling but were nevertheless faced with an overall decline in their loan amount.

According to data released by the Financial Supervisory Committee on Sunday, eight out of 10 mortgage borrowers in designated real estate zones will see an average of 50 million won ($44,000) fall in their credit line.

Observers also pointed out that the strengthened loan qualifications may push aspiring home purchasers out of the banking sector to nonmonetary institutions.

According to a report issued by the Korea Institute of Finance earlier this year, the total amount of credit loans for home-purchasing purposes fell 27 percent on-year, while the corresponding figure for the nonmonetary institutions rose by 26 percent, indicating an influx of customers.

By Bae Hyun-jung (tellme@heraldcorp.com)