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S Korea's property curbs could temper GDP boost from construction
[SEOUL] After years of struggling to curb household debt, South Korean policymakers are slowly turning the screws on speculative housing investments to curb financial perils even as the rules risk dousing one of the few bright spots in a wobbly economy.
The nation's outgoing finance minister Yoo Il-ho said on Thursday the government will limit the resale of newly built homes in Seoul and some parts of Busan - areas where overheating has raised worries about a bubble. "We plan to take preemptive measures to stabilize the property market in all of Seoul, Sejong, and parts of Gyeonggi province and Busan, to make sure the market is focused on actual demand," Yoo Il-ho said in a meeting with other ministers.
The new rules come as a deepening political crisis has rattled South Korea's financial markets.
On Wednesday, South Korea's presidential office named a new prime minister and said it will replace Yoo with Financial Services Commission Chairman Yim Jong-yong - the highest-level shake-up since President Park Geun-hye's administration was rocked by a scandal involving a friend accused of meddling in state affairs.
While the crisis has created uncertainty over policy making, analysts don't expect any changes to the property curbs, which are effective immediately.
Officials are attempting to cool speculative investments in Seoul and some areas of Busan without harming other regional markets after a polarization of house prices in Asia's fourth largest economy.
The curbs though could put a dampener on construction activity, one of the few strong suits in an economy hobbled by weak exports and low domestic consumption. "We expect an imminent shift to tightening to hit the construction sector, which has been a major beneficiary of the relaxation of macroprudential policy," Tim Condon, an Singapore-based economist at ING said in a report.
The central bank has cut interest rates to a record low of 1.25 percent, but has repeatedly said that lowering borrowing costs aggressively would inflame an already growing household debt burden.
Household debt stood at 88.4 percent of the gross domestic product as of the end of 2015.
South Korea's property market challenges mirror those in China and New Zealand where a hot housing market in big cities have complicated policy making. The Reserve Bank of New Zealand in September tightened mortgage deposit requirements except for new homes, while China's southern cities in October imposed new cooling measures to ease a buying frenzy.
Those buying a property in Seoul will be required to maintain their ownership for up to 18 months before they can put it on sale, extending the period from the current six months, the government said.
While all of Seoul and the administrative capital of Sejong will face the fresh limits, the new measures will be applied to only parts of the Gyeonggi area on the outskirts of the capital and the southern port city of Busan.
The targeted approach was necessary due to heated competition for new apartments in some regions, such as the affluent Gangnam district of Seoul, while other areas suffered from an oversupply of homes.
Apartment prices in Gangnam area grew 5.08 percent in October from a year earlier, well above the nationwide average of 1.8 percent, Kookmin Bank data showed on Tuesday.
The new curbs follow earlier measures requiring new home buyers to take out amortized loans instead of the interest-rate only payments since February this year.