Borrowing for Seoul Apartment Purchases at Record Low... [Real Estate A to Z]

Court Registry Information Plaza: Maximum Secured Claim Ratio for Multi-Unit Buildings
Seoul at 38.97% in September... Lowest Since 2010
"Buyers Are Using Personal Funds Amid Lending Restrictions and High Interest Rates"

The share of borrowing used to purchase apartments, row houses, officetels and other multi-unit buildings in Seoul has fallen to its lowest level on record. The trend is believed to reflect a growing preference for using cash on hand and other personal funds rather than loans, as stringent lending restrictions have continued under the current government and interest rates are expected to keep rising.

According to data compiled by the Court Registry Information Plaza, the ratio of the maximum secured claim amount to transaction value for multi-unit building sales in Seoul stood at 38.97% last month. The maximum secured claim amount is the highest amount that a creditor, such as a bank, registers as a preferential claim against collateral when issuing a mortgage loan, to protect against the borrower's default. First-tier financial institutions typically set this amount at around 110% to 120% of the loan. For example, if someone buys a home worth KRW 1 billion, setting the maximum secured claim amount at around KRW 390 million would mean the actual loan was approximately KRW 320 million to KRW 350 million.

A property listing notice at a real estate agency in Seoul. Yonhap News Agency

This was the first time the ratio had fallen below 40% on a monthly basis since the court began compiling and publishing related statistics in 2010. Seoul's ratio is typically somewhat lower than that of other regions because home prices tend to be higher. Even so, it had remained in the 40% to 50% range, and at times exceeded 60%.

By district, the more expensive the homes, the lower the ratio. In Gangnam District, the ratio stood at 19.75% last month, remaining below 20% for the second consecutive month. One property registration in Dogok-dong, Gangnam District, showed a ratio of just 8%. The ratios were about 24.52% in Seocho District and 23.04% in Songpa District. Yongsan District (31.55%) and Seongdong District (27.33%) also recorded relatively low figures. Geumcheon District (55.42%) and Dongdaemun District (55.74%) posted higher ratios than other areas.

Although the figures vary somewhat, the ratio is generally declining across Seoul. Restrictions on the debt service ratio (DSR) and loan-to-value (LTV) ratio have reduced borrowing limits. Stringent lending restrictions introduced under the June 27 and October 15 measures last year also remain in place. Buyers of homes worth more than KRW 2.5 billion can borrow a maximum of just KRW 200 million.

There is also still a possibility of further interest rate hikes before the end of the year. The Bank of Korea has said it will make its decision after considering inflation, housing prices in the Seoul metropolitan area and household lending trends, among other factors. The U.S. Federal Reserve raised its benchmark interest rate last month and signaled the possibility of another hike before the end of the year, a development that is bound to affect South Korea as well. In other words, the higher cost of interest has made it more burdensome to borrow a large sum to buy a home.

In areas with relatively expensive homes, such as the Gangnam area, transactions using personal funds are on the rise. These include cash on hand, proceeds from selling stocks or bonds, and proceeds from disposing of existing real estate. According to data on funding plans, personal funds have consistently accounted for more than 70% of total transaction value in Gangnam District since August last year.

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