Government Expands Financial Support for Non-Apartment Housing Market

The government is expanding financial support to revitalize the sluggish non-apartment housing market. A new policy loan will allow young people to apply a loan-to-value ratio (LTV) of up to 80% when purchasing villas or officetels for the first time.

Since the recent rental fraud incidents, the non-apartment market has seen unclear pricing and a decline in transactions. There are concerns that increasing loans to boost demand could lead to significant losses for young buyers if property values decline after purchasing at high LTVs.

According to the Ministry of Land, Infrastructure and Transport and the Financial Services Commission, the government plans to launch the 'Youth Future Housing Loan' in January 2027. This program will be available to first-time homebuyers under 39 years old with an annual income of less than 70 million won, allowing them to purchase non-apartment housing priced below 400 million won and with a floor area of less than 85 square meters.

The preferential LTV for first-time buyers will be set at 70% in the metropolitan area and up to 80% in other regions. The government plans to supply up to 6 trillion won over two years, at a lower preferential interest rate than the standard housing loan.

Last year, the number of new housing starts in the metropolitan area was only 14,000 units, about 25% of the recent 10-year average of 56,000 units. The government aims to support the construction of 130,000 new housing units in the metropolitan area by 2030.

The loan limit for construction funds for multi-family and multi-unit housing will be increased from 70 million won to 90 million won, with the interest rate reduced from 3.5% to 3.2%. The allowable number of floors for multi-family housing will also be increased from three to four.

Loan regulations will be relaxed for businesses purchasing newly constructed general housing. General businesses will be subject to an LTV of 30% in regulated areas and 60% in non-regulated areas. Registered rental businesses can access an LTV of up to 60%, regardless of location.

The government aims to improve financing conditions for suppliers and enhance the purchasing power of young buyers to revive the stagnant non-apartment market.

However, the non-apartment market has fewer transactions than apartments, making it difficult to assess fair market prices. If the market remains stagnant, selling properties may also become challenging. There are lingering distrust issues related to illegal construction and defects.

For instance, if a buyer purchases a 400 million won property in the metropolitan area with a 70% LTV, the loan amount would be 280 million won, with 120 million won in personal capital. If the property value drops by 20% while the loan principal remains unchanged, the asset value after subtracting the loan would decrease to 40 million won. A 30% drop would effectively erase the initial personal capital.

Financial authorities acknowledge the potential risk that young buyers may struggle to transition to apartments or other housing if prices fall after purchasing non-apartment properties, but they emphasize that this policy adds options for young people.

Even with increased construction funding, if demand does not support it, new construction may not materialize. If businesses believe that properties will not sell after completion, they may refrain from starting projects, even with improved loan conditions.

Relaxing construction regulations to allow more housing on the same site could worsen parking and sunlight conditions. There are calls for measures to enhance price transparency and housing quality alongside increased supply.

Seojin Hyung, a professor at Kwangwoon University’s Department of Real Estate Law, stated, "Even if supply increases, if there is insufficient demand for units, developers will find it difficult to commence construction. Without easing regulations centered on one household per unit and mandatory residence, relying solely on construction funding support has its limits in stimulating supply."