As the government restricts the maturity extensions of apartment mortgage loans for multiple home owners and rental business operators as part of its household debt management plan, attention is focused on whether the measure can stabilize home prices. President Lee Jae-myung also called maturity extensions for multiple home owners and rental business operators a "benefit" and said it was unfair, adding that removing such benefits would increase housing listings and help stabilize prices. However, most experts expect the latest household debt management plan will not have a significant impact on the real estate market.
◇ Impacted group "limited"
The main reason this measure is not expected to have a big impact on the market is the current structure of apartment mortgage loans. The government said, in principle, it will not allow maturity extensions on apartment mortgage loans for individuals who own two or more dwellings and for rental business operators (individuals and corporations) who hold apartments in the greater Seoul area and regulated zones. In the June 27 plan last year, it banned new loans for multiple home owners, and in the Sept. 7 plan it blocked new loans for rental business operators; now it intends to restrict even maturity extensions.
However, most apartment mortgages have already been converted, under the financial authorities' household debt management measures, to long-term principal-and-interest amortizing structures with maturities of 20 to 30 years. A representative example is the "Safe Conversion Loan" launched in 2015 by 16 commercial banks. This was a policy loan product led by Vice Chair Kwon Dae-young of the Financial Services Commission (FSC) when he was the director of financial policy, converting existing variable-rate, lump-sum repayment mortgages into long-term fixed-rate, amortizing loans. Borrowers could choose maturities up to 30 years, and the first and second tranches, each with a 2 trillion won limit, were snapped up quickly. The Safe Conversion Loan was first launched in 2015 and reissued in 2019 in a version for low- and middle-income borrowers. The latter product limited eligibility to one-home households with a combined spousal income cap, but the 2015 product was available to multiple home owners and had no income limit. Even now, most newly originated mortgage loans are issued with fixed rates for five years or longer and in long-term principal-and-interest partitioning formats.
Lee Joo-hyun, a senior expert at GGAuction, said, "Many loans are set with 30-year maturities, so there won't be that many dwellings affected by the maturity extension restriction." Ham Young-jin, head of Woori Bank's Real Estate Research Lab, explained, "When rental business operators take out loans such as facility maintenance funds (working capital) with apartments as collateral, some use a lump-sum repayment structure with maturities every few years, and those loans will be affected." However, many in the industry say the practical effect of the measure will be limited because many apartment mortgage loans have already been contracted as long-term agreements of 20 to 30 years or more.
◇ Gangnam and Mayongseong have no loans either
Regions that set the benchmark for home prices, such as Gangnam, Mapo, Yongsan and Seongdong, also fall outside the scope of this household debt management plan. That is because these areas have low loan-to-value ratios relative to overall home prices, and even if maturity extensions are not allowed, owners can switch to tenant deposits such as high-priced jeonse. According to KB Real Estate, in September last year the average apartment sale price across 11 districts south of the Han River in Seoul reached 1.80677 billion won, surpassing 1.8 billion won for the first time since the data began. In the three Gangnam districts, the average sale price for a 59-square-meter unit also topped 2 billion won. In the Oct. 15 plan last year, the government also capped mortgage loan limits at 200 million won for dwellings over 2.5 billion won in the greater Seoul area and regulated zones. This means banning maturity extensions is structurally unlikely to produce policy effects.
However, rental dwellings registered by existing rental business operators could be affected. The rental business operator system, introduced by the government in 2004, granted tax benefits if operators maintained mandatory rental periods of up to 10 years and observed a rent cap of 5% per year. Although the system for apartment rental business operators was abolished in 2020, some apartment operators who registered earlier remain un-deregistered. Because the registration criterion for rental dwellings was "officially assessed price of 600 million won or less," the market analyzes that these are concentrated in Seoul's outskirts and mid- to low-priced apartments.
Kim Hak-ryeol, head of the Smart Tube Real Estate Research Institute, said, "High-priced dwellings have almost no loans, and even if there are loans, if maturity extensions are not allowed, many are in popular areas where tenants will still move in even at higher jeonse prices, so the policy will have no effect." Kim added, "Instead, dwellings in Seoul's outskirts and Gyeonggi Province that were purchased by taking both tenants' deposits—whether jeonse or monthly rent—and bank loans will be affected by the ban on maturity extensions, leading to more listings or foreclosures and increasing hardships for ordinary people."