The South Korean government has doubled its target for household loan growth from 1.5% to 3% and plans to expand financial support for real estate project financing (PF). This decision comes as household loans were quickly depleted in the first half of the year, leading to a halt in down payment and relocation loans, which has caused funding shortages for normal housing projects. The government faces a challenge in its real estate policy to ensure that funding is available for genuine buyers while preventing speculative demand and rising housing prices.
Increasing the household loan quota will provide the financial sector with an additional annual lending capacity of approximately 30 trillion won. The government intends to prioritize this funding for relocation costs related to reconstruction and redevelopment, as well as for down payments and final payments for newly built apartments, particularly for young, genuine buyers. It is essential to correct the side effect of genuine buyers being unable to secure loans due to quota management.
However, the market does not always respond as the government intends. The mere fact that the lending capacity has doubled may be interpreted as a signal that “the government is ultimately loosening its purse strings.” This is especially true in a climate where expectations for rising housing prices persist. To prevent the increased funds from fueling speculative buying beyond genuine demand, banks must carefully manage loan flows by institution and purpose. A policy of tightening after loosening, in response to rising housing prices, only strengthens the market's resilience.
Similar principles are necessary for PF support. It is crucial to prevent funding shortages from halting normal housing projects. However, if financial support is extended to unviable projects, it undermines the significance of the PF restructuring efforts made thus far. The principle of preserving viable projects while winding down unprofitable ones must be upheld.
Such fine-tuning of financial regulations should not be perceived as a retreat from the government's overall real estate policy. Recently announced reforms to real estate taxation have faced opposition from both the ruling and opposition parties, but the government must not waver in its commitment to shift the tax system toward supporting actual residents and reducing excessive capital gains tax benefits for high-value properties.
Reasonable exceptions and supplementary measures are necessary for single-homeowners who cannot live in their homes due to job relocations, caring for parents, or children's education, as well as for low-income elderly long-term homeowners. However, addressing exceptions should not overturn policy principles. It is reasonable to protect actual residences while not providing excessive tax benefits for unoccupied homes or substantial capital gains.
If these principles are compromised due to political backlash, it could send a misleading signal to the market that “holding out will eventually lead to relaxed regulations.” If the tax system retreats at the same time as the loan quota is increased, this signal will be even stronger. This is a point the government must be particularly cautious about.
Simply tightening the money supply is not a solution. Necessary funds must flow to genuine demand and normal housing supply. However, this should not lead to a relaxation of the overarching principles of real estate policy aimed at curbing speculation and prioritizing actual residency. The government must demonstrate a sophisticated policy operation that stabilizes housing prices while allowing funds to flow where they are needed.
* This article has been translated by AI.
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