S. Korea to further tighten lending rules, expand regulated areas to curb rising home prices

South Korea said Wednesday that it will further tighten lending rules and designate more areas subject to tighter regulations in an effort to stem a further rise in housing prices.

The government also warned that it will take additional stronger steps to curb speculative demand, if needed.

The government rolled out its toughest measures yet to stem rising housing prices in greater Seoul and some unregulated areas, as a series of steps, including tax hikes and loan regulations, failed to put a brake on soaring home prices.

Stricter lending rules will be applied to curb excessive demand for home-backed loans amid cheap borrowing costs, and almost half of the Seoul metropolitan area will be put under tighter rules, according to the land ministry.

The government designated Gyeonggi Province that surrounds the capital; Incheon, west of Seoul; and the central cities of Daejeon and Cheongju as areas subject to close monitoring or "overheated speculative" zones.

Under the measures, people who take out mortgage loans to buy houses in regulated areas are required to move into homes within six months of receiving the loans.

The government said amid record-low interest rates, ample liquidity has flowed into the housing market, causing overheating in Seoul, adjacent areas and several provincial areas.

"If needed, the government will continue to take powerful and imminent measures (to curb speculative demand) at any time," Land Minister Kim Hyun-mee said in a briefing.

Housing prices in Seoul and some adjacent cities have risen, and overheating is on the brink of spreading to non-regulated areas despite the government's efforts to cool the real estate market.

 Prices of apartments in Seoul rose an average of 5 percent over the past five months, according to data from KB Koomin Bank.

The Moon Jae-in administration has unleashed a series of comprehensive measures to stem rising home prices, but the regulations have resulted in a only short-term letup in housing prices.

Under the government's property rules unveiled in December, mortgage loans are banned for the purchase of houses worth more than 1.5 billion won ($1.3 million) in areas designated as "speculative" and "overheated speculative."

The loan-to-value ratio for the purchase of a home valued at between 900 million won to 1.5 billion won was also cut to 20 percent from the previous 40 percent.

Home transactions in South Korea sank more than 30 percent in April from the previous month due to tougher property rules and the new coronavirus pandemic, according to government data.

But the tally rose roughly 29 percent compared with the previous year.

Excessive liquidity, sparked by a long streak of low rates, could fuel a rise in home prices, forcing the government to closely monitor the property market.

South Korea has been implementing expansionary fiscal and monetary policies to cope with the economic fallout of the COVID-19 pandemic.

The country's M2, a gauge of money supply, grew 34 trillion won on-month to 3,018.6 trillion won in April, marking the largest monthly gain ever, according to central bank data.

The Bank of Korea cut its policy rate by a quarter percentage point to a record low of 0.5 percent in June as the economy slows down amid the virus outbreak. (Yonhap)