South Korea tightens rules on housing to restrain buying frenzy in some cities

[SEOUL] South Korea said on Monday it will tighten mortgage restrictions and curb speculative resales of homes in Seoul and parts of Busan to stabilise hot housing markets amid soaring household debt.

Effective July 3, the government will tighten loan limits for home buyers to 60 per cent of a property's value from the current 70 per cent in regions showing signs of overheating including Seoul, the finance ministry and financial regulator said in a statement.

Also in Seoul, debt repayments will be limited to 50 per cent of borrowers' annual income.

The government will also restrict the resale of newly built apartments in Seoul and some parts of Busan until registration of property ownership is complete, to cool speculation in those regions, it said.

Rather than nationwide measures, the government is trying a targeted approach aimed at cities with the most heated property prices to reduce the impact on the construction sector, which grew almost five times faster than the gross domestic product in the first quarter.

"This is in line with what the market had expected for weeks," Kim Doo-Un, an economist at Hana Financial Investment said.

"Although mortgage rules are being tightened, it may not be enough to cool the property market demand as some regions had supply shortage problems," Mr Kim said.

The central bank's eight rate cuts since 2012 helped send home prices and household debt to record levels.

The average price of a Seoul apartment in March exceeded 600 million won (S$733,745) for the first time, an increase of more than 20 per cent from four years earlier.

Apartment prices in Seoul rose 0.3 per cent in the week of June 12 from a week earlier, the fastest clip since 2009, according to Kookmin Bank data.

"Curbing the property market speculation would limit overall household debt growth. I don't see debt growth worsening under such policy direction," Mr Kim at Hana said.

At 92.8 per cent of the GDP, South Korea's household debt even exceeds that of the US and Japan, Bank for International Settlement data shows.

REUTERS