President Lee Calls for Bold Housing Supply; Financial Authorities Consider Expanding Public Guarantees for PF

Deliberating Criteria for Speculative Non-Resident Single Homeowners

As President Lee Jaemyung has called for "bold housing supply measures," financial authorities have begun reviewing steps to activate supply-side real estate financing, such as expanding public guarantees for project financing (PF) and easing related regulations. However, with public sentiment on real estate having worsened following the tax reform announcement, they are grappling with how to establish reasonable standards to distinguish genuine end-users from "speculative non-resident single-homeowners."

Apartment buildings in downtown Seoul as seen from Namsan, Seoul on the 19th. Photo by Yonhap News

According to financial authorities on August 9, the Financial Services Commission is examining multiple approaches to activate supply-side financing based on feedback from the field and the construction industry, in line with President Lee’s drive to boost housing supply.

The most prominent proposal under consideration is the expansion of public guarantees for PF. The aim is to facilitate financing for project sites experiencing liquidity shortages by increasing the guarantee programs run by public institutions such as the Korea Housing Finance Corporation (HF), especially as banks maintain a cautious approach to lending.

In response to industry demands, there is also a possibility that authorities may ease soundness regulations. Authorities had planned to raise the minimum equity ratio for PF project sites to 20% over the next four years starting next year, in order to prevent PF projects based on excessive borrowings. However, there have been concerns that banks have preemptively applied stricter guidelines ahead of the policy’s implementation, causing capital inflows at project sites to shrink. Some are calling for the relaxation of regulations by recognizing private rental housing as social overhead capital (SOC), or for postponing the implementation of the new rules.

Attention is also focused on whether the authorities will ease loan regulations imposed on housing sales and rental businesses in the September 7 measures last year. One possibility is to expand exceptions allowing loans for new homes supplied for rental purposes, thereby encouraging more rental housing supply. Financial authorities are also reviewing ways to ease final payment loans at soon-to-be-completed complexes and to expand loan limits by applying the mortgage loan-to-value (LTV) ratio to newly-built, rather than existing, homes.

During two previous real estate policy review meetings, President Lee emphasized, "Don’t cling to conventional thinking; judge from a new perspective and act boldly."

A core element of the real estate policy soon to be announced by the Financial Services Commission is likely to be regulations on jeonse loans for speculative, non-resident single-homeowners. The intent is to curb "speculative demand" from those owning but not occupying homes. In April, the Financial Services Commission foreshadowed such lending restrictions when it announced measures to limit mortgage extensions for multi-homeowners, stating it would introduce regulation for non-resident single-homeowners with speculative intent.

Potential measures to regulate jeonse loans include further reducing or restricting the guarantee coverage provided by public guarantee institutions, such as Korea Housing Finance Corporation, Korea Housing and Urban Guarantee Corporation (HUG), and SGI Seoul Guarantee.

The key challenge is determining how to distinguish genuine end-users from speculative demand among non-resident single-homeowners. A senior official at the financial authority said, "When establishing standards to screen speculation, we’re seeking to ensure that genuine end-users are not unduly inconvenienced."

It is possible that exceptions recognized by the government during the tax reform announcement for unavoidable circumstances will also be applied to the jeonse loan restriction regulations. The government has recognized exceptions for cases such as job changes or transfers, illnesses requiring treatment or care for over one year, school transfers due to school violence, and caring for elderly parents.

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