The government has begun to review the easing of loan regulations only in regions where unsold dwellings have surged, but there are projections that the recovery of the regional real estate market will fall short of expectations. Even if the Debt Service Ratio (DSR) regulations are relaxed, and more funds become available, it is anticipated that the demand to purchase unsold dwellings in these regions will not be significant due to the potential for falling real estate prices. It is pointed out that the recovery of the regional real estate market will be more difficult than expected if the easing of loan regulations is not accompanied by additional support such as tax benefits.
According to the Ministry of Land, Infrastructure and Transport and the Financial Services Commission on the 5th, the government is considering a temporary relaxation of DSR regulations in regions. The Financial Services Commission noted that there are many factors to assess regarding the temporary easing of DSR regulations for unsold dwellings in the regions, including necessity, validity, effectiveness, and policy consistency, and stated, "We will consider this carefully."
The DSR is the amount of annual principal and interest repayment on loans obtained from all financial institutions divided by annual income. Currently, a DSR regulation of 40% is applied to bank loans and 50% to non-bank loans. The stress DSR is a system that calculates loan limits by adding a stress rate (surcharge) to the actual loan interest rate to reflect future interest rate volatility risks. If the interest rate applied at the time of the loan increases while the borrower's income remains the same, the loan limit decreases.
The review of different loan regulations for the capital region and the provinces by the Financial Services Commission comes in response to requests from the ruling party. The ruling party requested the temporary easing of loan regulations only in the provinces following the bankruptcy of construction companies due to the regional real estate market slump.
As the real estate market stagnates, the number of unsold dwellings nationwide is rapidly increasing. The number of unsold dwellings nationwide reached 70,173 units at the end of last year, an increase of 7.7% compared to the previous month. About 76% of unsold dwellings are concentrated in the provinces. In particular, the so-called "malignant unsold dwellings," which are unsold dwellings post-completion, have exceeded 20,000 units for the first time in 10 years and 5 months. At the end of last year, the number of unsold dwellings post-completion was 21,480 units, marking a 15.2% increase compared to the previous month. About 80% of these malignant unsold dwellings are also located in non-capital areas.
There are projections that easing loan regulations will contribute to revitalizing the regional real estate market. Park Won-gap, chief real estate expert at KB Kookmin Bank, stated, "It will be helpful for the recovery of the regional apartment market, which is stagnant due to outflow of the younger population and regional economic contraction," adding that "now there is a low possibility of market instability without speculative demand, so a differentiated approach compared to the Seoul and capital area market is necessary." However, Chief Expert Park also noted that "as the supply of new dwellings decreases, there is a possibility of supply-demand imbalance in the provinces, so indiscriminately easing (loan) regulations is problematic."
At the same time, there are also observations that simply easing loan regulations will not restore the regional real estate market as much as expected. This is because the easing level of loan regulations by the financial authorities is not expected to be significant. Currently, financial authorities do not hold a positive view on the temporary easing of DSR regulations in the provinces, so even if DSR regulations are eased, the extent is expected to be limited. A senior official from the financial authorities stated, "The currently implemented two-tier stress DSR already differentiates between capital and non-capital areas, so applying this to a three-tier system should not be a major burden," but noted that "various considerations need to be taken regarding altering the DSR itself," showing a cautious attitude.
The low demand to purchase unsold dwellings even if loan regulations are eased is also a reason for the pessimistic view on the recovery of the regional real estate market. When loans are available, it is likely that there will be a preference for other dwellings with higher marketability rather than unsold dwellings in the provinces. Lee Eun-hyung, a research fellow at the Korea Construction Policy Institute, stated, "Looking at the unsold apartments in the provinces, they are mostly located in undesirable locations or have prices that are excessive compared to nearby market prices," and added, "It is uncertain whether easing DSR regulations and increasing loans will lead to increased transactions of unsold apartments." He continued, "Rather, it may be more socially favorable for prices to be adjusted to match market demand as some unsold dwellings occur."
There are insights that improvements to loan regulations should be accompanied by tax benefits to help resolve the issue of unsold dwellings in the provinces. Seo Jin-hyung, a professor at Kwangwoon University's Department of Real Estate Law, noted, "Because of loan regulations, there is a situation where people cannot buy houses, so overall adjustments to the DSR are necessary, and for long-term malignant unsold dwellings, tax benefits such as acquisition tax should be provided."