"'Homeowner Lends 600 Million Won': What Is 'Seller Financing' Emerging in Gangnam Apartment Transactions?"

Seller Financing Returns Amid Stricter Loan Regulations
Sellers Earn Interest While Buyers Reduce Cash Burden
Concerns Over Weaker Financial Regulations as Private Loans Increase

In Seoul's Gangnam apartment market, the so-called "seller financing" method—where the homeowner lends a portion of the purchase price directly to the buyer—has resurfaced. As financial institutions have tightened mortgage lending standards, transactions are now emerging, particularly centered on high-priced housing, in which buyers and sellers design their own financing structures. This trend has sparked controversy.

Naver Real Estate

On July 23, a listing for a 59-square-meter apartment in Gangnam District posted on Naver Real Estate included the condition, "Homeowner loan of up to 600 million won available." The property was originally listed for 1.95 billion won on June 29, but the asking price was recently raised to 2 billion won. With this structure, if the buyer secures a 400 million won loan from a financial institution and an additional 600 million won from the seller, they can purchase a 2 billion won apartment with their own capital of 1 billion won.

The Maximum Secured Claim Differs from Actual Loan Amount—Check Contract Details

Seller financing refers to a method in which the seller receives the sale proceeds in stages or directly lends a portion of the outstanding balance to the buyer, instead of collecting the entire amount at once. Ownership of the property is transferred to the buyer, but the seller secures their claim by registering a mortgage on the property. This allows the seller to earn interest income upon closing the deal and enables the buyer to procure additional funds beyond the typical lending limits of financial institutions. However, because these loans are private arrangements between the parties—and not handled by a bank—they tend to have more complex terms and risk profiles than conventional bank loans.

Apartment sale information is posted in front of a real estate agency located within a large apartment complex in Seoul. The Asia Business Daily

Currently, in the Seoul metropolitan area and other regulated zones, mortgage limits for home purchases vary according to the property’s price. For homes priced at 1.5 billion won or less, the maximum loan amount is 600 million won. For homes exceeding 1.5 billion won, but not exceeding 2.5 billion won, the maximum is 400 million won. For houses priced above 2.5 billion won, the limit drops to 200 million won. In regulated districts, the loan-to-value ratio (LTV) is also restricted, which means the actual amount a buyer can borrow may shrink further depending on their income and existing debt.

This explains why seller loans are emerging as alternative financing tools for buyers of high-priced homes who can’t borrow enough from financial institutions. In 2020, during the Moon Jae-in administration’s outright ban on mortgages for apartments priced above 1.5 billion won, there were cases in which sellers lent a portion of the balance directly to buyers in Gangnam. More recently, interest in seller financing grew following news that President Jae-myung Lee and his spouse sold their jointly owned apartment in Sunae-dong, Bundang-gu, Seongnam, Gyeonggi Province.

The presidential couple sold the apartment for 2.9 billion won and, after transferring ownership, registered a mortgage with a maximum secured claim of 1,777 million won against the new owners as debtors. The Office of the President explained, “The registration details reflect the buyer’s situation. The property was sold at a lower-than-market price of 2.9 billion won, and while there was no legal obligation to sell as a one-homeowner, this measure demonstrates our commitment to the normalization of real estate policy.”

Average Prices of Major Premium Apartments in Seoul. The Asia Business Daily

However, the "maximum secured claim" recorded in the registration is only the upper limit of the amount that can be secured by the mortgage. It does not necessarily match the actual principal lent or the unpaid balance. Details such as the specific loan amount, interest rates, and repayment schedule must be checked in the contract between the parties. Seller financing itself is not prohibited under current law. Under the Civil Act, individuals can enter into a money loan agreement and register a mortgage on real estate as collateral.

However, unless the interest rate, repayment date, overdue interest, prepayment terms, and collateral ranking are clearly stated in the contract, civil disputes may arise. The Interest Limitation Act also applies to private loans: the maximum legal interest rate is 20% per annum. Any contract stipulating a higher rate will only be valid up to this statutory ceiling.

Not Illegal—but Interest Income Reporting and Proof of Repayment Ability Are Essential

Taxation issues must also be considered. If the seller is not a financial professional, the interest income they receive may be classified as “non-business loan proceeds” under tax law. According to the National Tax Service, the withholding tax rate is 25% for income tax, with an additional local income tax levied. In principle, anyone paying private interest income in Korea is required to withhold tax at source, so both parties must clarify their tax arrangements in advance.

It is also critical to assess whether the buyer can realistically repay the principal and interest. If the borrowings are excessively high compared to the buyer’s income, the repayment schedule is unusually long, or there is no evidence of interest payments, the arrangement may be suspected of being a sham debt or disguised gifting rather than a bona fide loan. There are also risks for the seller: if ownership is transferred first and the buyer fails to repay, the seller—now a creditor, not the property owner—must enforce the mortgage. If there is a senior lien or the auction price drops, the seller may not be able to recover all principal and interest.

There are concerns that from a policy perspective, the effectiveness of financial institution loan regulations may weaken as seller financing increases. The Asia Business Daily

Similarly, if the buyer cannot arrange funds by the loan’s maturity, the home could be auctioned off. Even if the contract assumes refinancing through a bank loan later, stricter lending regulations or falling home prices could lead to refinancing denial. In exchange for a lower initial capital outlay, the buyer assumes the risk of having to repay a large lump sum at maturity.

From a policy perspective, there are concerns that as seller financing becomes more common, the effectiveness of financial institution lending regulations could diminish. If private debt that has not undergone banks' LTV or DSR screening is used for home purchases, the true scale of the buyer's debt and repayment risk can end up outside the financial sector's oversight framework. However, some analysts believe it is unlikely that seller loans will quickly spread throughout the high-priced housing market, since sellers would need to defer the collection of several hundred million won for an extended period while shouldering the buyer’s credit risk. Thus, this type of transaction typically only proceeds when the seller is not in urgent need of cash and seeks interest income, and when the buyer has sufficient personal capital but cannot secure enough funding from financial institutions.

This content was produced with the assistance of AI translation services.