As home prices surge centering on Seoul, the government is reviewing additional measures to stabilize the real estate market. It is preparing a comprehensive package out of concern that a one-off announcement in response to rising prices could repeat the past, when such steps ended up stoking the market. There is a strong possibility that measures with significant market impact—ranging from expanding regulated zones to raising the fair market value ratio (fairness ratio) and imposing additional lending curbs—will be unveiled at once.
According to the Ministry of Land, Infrastructure and Transport on the 10th, the Ministry of Land, Infrastructure and Transport, the Ministry of Economy and Finance, and the Financial Services Commission are discussing plans to stabilize the real estate market. A government official said, "Given how hot the dwellings market is, it wouldn't be surprising for measures to come out at any time," but noted, "No specific plans or timing have been decided yet."
Another government official said, "All the measures to stabilize home prices are already prepared," and added, "We are at the stage of discussing them with the presidential office under the leadership of the Ministry of Land, Infrastructure and Transport. It appears a decision will be made on which combination of measures to roll out."
At present, the uptrend in home prices is pronounced, centering on the Seoul "Han River belt." According to the Korea Real Estate Board (REB), apartment prices in Seoul in the fifth week of September rose 0.27% from the previous week (0.19%). Districts in the Han River belt—Seongdong-gu (0.78%), Mapo-gu (0.69%), and Gwangjin-gu (0.65%)—are seeing steep gains. In the greater Seoul area, Bundang-gu in Seongnam (0.97%) and Gwacheon (0.54%) are posting strong increases in home prices.
Among the measures on the government's review list, the most likely is expanding regulated areas such as speculative overheating districts or areas subject to adjustment. A speculative overheating district can be designated when the dwellings price increase over the past three months is at least 1.5 times the inflation rate, and an area subject to adjustment can be designated at 1.3 times or more. Regions where home prices have recently surged meet these requirements, allowing the government to place them under regulation at any time. Once designated as regulated, the loan-to-value (LTV) ratio for dwellings mortgages is reduced from the existing 70% to 40%, and acquisition, capital gains, and comprehensive real estate tax on multiple-home owners are toughened.
While the market is largely convinced that regulated areas will be expanded, the possibility that such expansion may blunt the effect is a burden for the government. Even if regulated areas are widened, the maximum loan limit is already 600 million won, so the impact of a lower LTV would likely be limited in places where prices have surged recently, such as Seongdong, Gwangjin, and Mapo. With strong demand for trading up to "one smart unit," the tax burden on multiple-home owners may also have little effect on the market.
Accordingly, the government could review expanding land transaction permit zones, but the Seoul city government has drawn a line against widening them, making it difficult to expand the target areas right away. A bill that would allow the Minister of Land, Infrastructure and Transport to designate such zones ex officio is still pending in the National Assembly.
Raising the fairness ratio is another lever the government could consider. For the comprehensive real estate tax, the fairness ratio used to derive the taxable base from the officially assessed price is 60% for single-home owners. Given that the official assessment averages 69% of market value this year, the tax base is only 41% of market value. Increasing the fairness ratio would lift the base and, in effect, broaden taxation.
There is also talk of tightening lending rules to curb demand for purchasing dwellings. One option is to reduce the total debt service ratio (DSR) cap from the previous 40% to 35%. In areas with high-priced homes such as the three Gangnam districts and Yongsan-gu, the maximum loan limit (600 million won) is a bigger constraint, so even stricter DSR rules may not have a large impact. Elsewhere, however, tougher DSR rules would reduce how much people can borrow, requiring more equity to buy a home.
Even as it reviews real estate stabilization steps, the government is carefully calibrating the timing of any additional announcement. It has experienced side effects in the past where frequent measures overheated the market.
Kim Yun-duk, Minister of Land, Infrastructure and Transport, said at a press briefing on the 29th of last month, "Rather than issuing more than 20 one-off measures like the Moon Jae-in administration, we will announce a comprehensive package," and added, "To be honest, there were views that certain responses were needed even before Chuseok, but the one-off responses—what past administrations called nimble responses—ended up leaving many 'aftermaths.' We should move quickly when speed is needed, but our broader stance is to default to a comprehensive plan."
The Ministry of Land, Infrastructure and Transport says that even the question of whether to announce additional curbs has not been finalized. In an explanatory note the same day, the ministry said, "Nothing has been decided regarding whether to announce real estate measures or their contents."
Still, voices in the market say the uncertainty over an additional announcement by the government is further fueling overheating in home prices. The head of a licensed real estate agency in Seoul said, "There is a perception that it will be harder to buy a house if the government adds regulations, so panic buying has increased recently as people try to purchase before curbs are tightened," and added, "We hope the government will send a clear signal on regulation."