Government to rein in surging home prices

The government is expected to announce a package of steps to take the steam out of overheating apartment prices in Seoul, officials and analysts said Monday.

Steps would include tightening banks’ loan assessment and qualification metrics of debt-to-income (DTI) and loan-to-value (LTV), while expanding the use of the debt-to-service ratio, according to officials.

During his confirmation hearing last week, Prime Minister nominee Lee Nak-yon said the government needs to apply a stricter standard for bank loans to break a vicious cycle of people borrowing more to repay their debt.

He also said the Moon Jae-in government will bring down the aggregate of household debt to a suitable level, even at the cost of negatively affecting the construction sector.

Analysts say the government would need to retighten the LTV and DTI measures to slow down the debt whose increase rate has exceeded that of household income.

“It would have to consider applying stricter LTV and DTI rules at least in southern Seoul and other areas that are showing signs of overheating,” said Jean Lim, a researcher at the Korea Institute of Finance.

He said the former government made the wrong move by deregulating the two metrics to spur the real estate market, saying that this has done more harm than good amid changing demographics.

SK Securities analyst An Young-jin also said the Moon government is unlikely to maintain the former government’s real estate deregulation.

Given that the President’s top priority is bringing stability to households and workers, the government needs to push efforts to stabilize debt and the real estate market.

“Stabilizing the debt to a suitable level does not mean it would want to control and bring down real estate prices. Rather, it seeks to stabilize the debt by preventing a potential bubble from bursting, and breaking the vicious cycle of debt repayment with debt,” An said. He noted that about 70 percent of household capital is tied to real estate assets.

“As the government seeks growth driven by households and workers, trying to bring prices down would cause negative side effects to their assets.”

Seoul’s apartment prices increased 0.3 percent on average last week, according to Real Estate 114.

This marked the highest increase in seven months.

Compared to a 0.03 percent increase in late April, prices jumped 10-fold amid expectations for the new government and its urban policies.

Moon suggested during his campaign he would push for the restoration and renovation of aging urban areas for the middle and lower class as part of his New Deal policy.