Seoul: The Lee Jae Myung administration has introduced its third real estate policy package, aimed at stabilizing the housing market, just four months into office. The new measures, announced on October 15, designate all of Seoul and 12 districts in Gyeonggi as regulated zones and land transaction permit zones. These measures are part of an effort to curb demand and address housing price instability in the capital region.
According to Yonhap News Agency, the new regulations include a significant reduction in the loan-to-value (LTV) ratio for mortgages from 70 to 40 percent, along with a cap on the debt-to-income (DTI) ratio at 40 percent. The government plans to impose heavier acquisition and capital gains taxes on multiple-home owners and tighten restrictions on the resale of apartment subscriptions. From October 20 until the end of next year, buyers in the designated zones will be required to reside in their properties for a minimum of two years, aiming to prevent "gap investment," which involves purchases made using rental deposits. Mortgage limits have also been revised, now set at 400 million won for homes priced between 1.5 and 2.5 billion won, and 200 million won for properties priced above 2.5 billion won, a reduction from the previous uniform cap of 600 million won.
The scope of these regulations has surpassed market expectations, with the government describing the move as a proactive measure to prevent "balloon effects," where demand shifts to areas not under regulation. The expansion of land transaction permit zones to nearly the entire capital region is unprecedented and highlights the government's concern over recent housing price volatility.
A significant aspect of the new policy is the inclusion of interest payments on jeonse loans in the total debt service ratio calculation, which is expected to curb excessive leverage in the rental market. Notably absent from the policy was an increase in property holding taxes, indicating a deliberate choice to avoid repeating the Moon Jae-in administration's approach, which heavily relied on taxation to control housing prices.
Real estate prices are ultimately influenced by supply and demand dynamics. With ongoing supply shortages, particularly in the Seoul metropolitan area, there are concerns that housing availability will not meet demand. To support the success of the demand-suppression measures, the government's plan to increase housing supply, announced on September 7, must be implemented promptly to bolster market confidence.
Analysts caution that the tighter loan limits might drive buyers towards more affordable apartments eligible for 600 million won loans, reduce rental listings, and accelerate a transition to monthly rents. Authorities are urged to monitor these trends closely and take swift action to mitigate any adverse side effects. Additionally, rationalizing property taxation to alleviate excessive demand for a single, stable home in Seoul is crucial.
Interest rates remain a key factor in determining housing prices. It is advisable not to hastily reduce the base rate until the new measures' effects become clearer. The experience of the Moon administration serves as a reminder that frequent policy changes can diminish market responsiveness and undermine confidence.