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Extension for relaxed housing loan regulations draws criticsm

Summary: 한겨레 Experts say the corresponding demand increase will appease construction companies and may push housing prices even higher Jung Se ra Senior Writer The Ministry of Land Transport and Maritime Affairs MLTM has stirred controversy with its move to extend the relaxation of debt to income DTI loan regulations which were set to expire in late March citing the reason of stabilizing the key deposit money market Some observers have charged that the decision shows no consideration for the plight of renters who lack the means to buy their own homes and that it presents major risk for a further increase in already dangerous levels of household debt Key deposit prices in South Korea can range from the tens to hundreds of thousands of dollars By the end of this month we will have real estate measures that encompass not only key deposit money and monthly rental arrangements but also the purchasing market said MLTM Office of Housing and Land Director Park Sang woo during a meeting with journalists Monday At the heart of it is the question of whether to extend the relaxed DTI restrictions Underlying this move by the Lee Myung bak administration is the determination that because the key deposit money situation worsened due to purchasing demand remaining confined to key money arrangements it can be resolved by encouraging housing purchases through extension of the relaxed DTI restrictions But opposition parties civic organizations and experts have countered that the administration should not be encouraging people in the working class to take on debt that exceeds their income level in a situation where household loans exceed a full 700 trillion Won $634 billion and the resulting interest burden is becoming increasingly severe At the moment the encouragement of transactions through looser DTI regulations is fanning expectations for a rise in already excessively high housing prices According to figures on housing transaction trends released in December by Kookmin Bank the median housing price in the Seoul area was 437 6 million Won as of September 2010 At this level a middle class family with an annual income of 36 73 million Won would have to avoid spending any of that money for more than 11 years Additionally the KB study showed that housing purchase prices rose continuously in the five months from August 2010 Predictions of rising home prices recently reached their highest level in three years However the same study showed 20 1 percent of people responding that they planned to buy a house compared to 30 1 percent saying that they planned to sell one indicating the relatively low probability that the demand of jeonse apartment lease will decrease or that key money deposit amounts will fall Indeed the apartment lease situation has only worsened over the past few months while housing prices have risen and transactions have shown signs of renewed activity Meanwhile suffering has worsened by the day for renters who lack the means either to buy a home or to pay skyrocketing key money deposits The rate of home ownership in South Korea has increased by around one percent in the five years since registering a 53 3 percent level in 1995 In 2005 it stood at an estimated 55 6 percent and it is currently estimated at 56 to 57 percent In contrast the rate of housing supply during the same period rose from 86 percent to 111 percent in 2009 This indicates that the problem is not with a lack of housing supply but with a majority of renters who account for 43 to 44 percent of all households moving from one rental arrangement to another unable to keep up with soaring housing prices Under these circumstances the absence of renter protections such as those adopted in Europe the United States and Japan including rental renewal rights and a rental fee ceiling system has led to aggravated residential anxieties for renters and diminished quality of life including a fall in disposable household income and a low birth rate We are considering putting off having our first child because of the jump in key money prices said a 32 year old named Shin in Bundang Gyeonggi Province one half of a newlywed dual income household Two years ago the couple entered a 110 million Won key money arrangement for an apartment measuring 66 square meters but they recently received word that the owner wants to raise the amount by 70 million Won Even after spending all of the 50 million Won we have saved up over the past two years we would still have to take out a loan Shin said It is just unbelievable Dankook University Urban Planning Professor Cho Myung rae said Current housing prices are a level where households that are already in excessive debt would have to take on even more reckless debt to buy a home Even if the housing purchase situation improves as the government intends a rise in housing prices is going to be accompanied by a rise in key money prices not a drop Cho added It is an unsuitable policy and it amounts to nothing more than using the key money crisis as an excuse to address appeals from construction companies Construction Industry Strategy Research head Kim Sun duk said It is outrageous logic to argue that the apartment lease market will stabilize with the emergence of purchasing demand The only measures to stabilize key money prices involve supply Kim added indicating that transactions can only be encouraged through downward stabilization of prices rather than inflation of housing prices Experts are viewing it as a certainty that extension of the looser DTI restrictions will lead to a sharp rise in residential mortgages According to figures given by the Financial Supervisory Service on Tuesday the total amount of residential mortgages for depository institutions had increased by 4 9 trillion Won as of December the highest level since the 5 1 trillion Won increase in November 2006 when talk of a real estate bubble was intense Banks mortgage balance also set a new record at 379 3 trillion Won The scale of household loans has increased particularly quickly since the August 29 real estate measures last year centering on the temporary lifting of DTI restrictions With an additional rise in interest rates expected to accompany the trend of rising consumer prices in 2011 an increased interest burden for households appears inevitable Financial authorities who went so far as to create a task force team toward a soft landing in household debt are reluctant to push the extension of looser DTI restrictions If we do not bring back DTI this time market expectations for the measures will change a financial official said This will be taken a sign of rising housing prices and the abolishment of regulations and household debt will go through the roof the official warned Please direct questions or comments to englishhani hani co kr 세상을 보는 정직한 눈 한겨레신문 구독 | 한겨레21 구독 공식 SNS 계정 트위터 www twitter com hanitweet 미투데이 http me2day net hankyoreh ⓒ 한겨레신문사 무단전재 및 재배포 금지 한겨레 Experts say the corresponding demand increase will appease construction companies and may push housing prices even higher Jung Se ra Senior Writer The Ministry of Land Transport and Maritime Affairs MLTM has stirred controversy with its move to extend the relaxation of debt to income DTI loan regulations which were set to expire in late March citing the reason of stabilizing the key deposit money market Some observers have charged that the decision shows no consideration for the plight of renters who lack the means to buy their own homes and that it presents major risk for a further increase in already dangerous levels of household debt Key deposit prices in South Korea can range from the tens to hundreds of thousands of dollars By the end of this month we will have real estate measures that encompass not only key deposit money and monthly rental arrangements but also the purchasing market said MLTM Office of Housing and Land Director Park Sang woo during a meeting with journalists Monday At the heart of it is the question of whether to extend the relaxed DTI restrictions Underlying this move by the Lee Myung bak administration is the determination that because the key deposit money situation worsened due to purchasing demand remaining confined to key money arrangements it can be resolved by encouraging housing purchases through extension of the relaxed DTI restrictions But opposition parties civic organizations and experts have countered that the administration should not be encouraging people in the working class to take on debt that exceeds their income level in a situation where household loans exceed a full 700 trillion Won $634 billion and the resulting interest burden is becoming increasingly severe At the moment the encouragement of transactions through looser DTI regulations is fanning expectations for a rise in already excessively high housing prices According to figures on housing transaction trends released in December by Kookmin Bank the median housing price in the Seoul area was 437 6 million Won as of September 2010 At this level a middle class family with an annual income of 36 73 million Won would have to avoid spending any of that money for more than 11 years Additionally the KB study showed that housing purchase prices rose continuously in the five months from August 2010 Predictions of rising home prices recently reached their highest level in three years However the same study showed 20 1 percent of people responding that they planned to buy a house compared to 30 1 percent saying that they planned to sell one indicating the relatively low probability that the demand of jeonse apartment lease will decrease or that key money deposit amounts will fall Indeed the apartment lease situation has only worsened over the past few months while housing prices have risen and transactions have shown signs of renewed activity Meanwhile suffering has worsened by the day for renters who lack the means either to buy a home or to pay skyrocketing key money deposits The rate of home ownership in South Korea has increased by around one percent in the five years since registering a 53 3 percent level in 1995 In 2005 it stood at an estimated 55 6 percent and it is currently estimated at 56 to 57 percent In contrast the rate of housing supply during the same period rose from 86 percent to 111 percent in 2009 This indicates that the problem is not with a lack of housing supply but with a majority of renters who account for 43 to 44 percent of all households moving from one rental arrangement to another unable to keep up with soaring housing prices Under these circumstances the absence of renter protections such as those adopted in Europe the United States and Japan including rental renewal rights and a rental fee ceiling system has led to aggravated residential anxieties for renters and diminished quality of life including a fall in disposable household income and a low birth rate We are considering putting off having our first child because of the jump in key money prices said a 32 year old named Shin in Bundang Gyeonggi Province one half of a newlywed dual income household Two years ago the couple entered a 110 million Won key money arrangement for an apartment measuring 66 square meters but they recently received word that the owner wants to raise the amount by 70 million Won Even after spending all of the 50 million Won we have saved up over the past two years we would still have to take out a loan Shin said It is just unbelievable Dankook University Urban Planning Professor Cho Myung rae said Current housing prices are a level where households that are already in excessive debt would have to take on even more reckless debt to buy a home Even if the housing purchase situation improves as the government intends a rise in housing prices is going to be accompanied by a rise in key money prices not a drop Cho added It is an unsuitable policy and it amounts to nothing more than using the key money crisis as an excuse to address appeals from construction companies Construction Industry Strategy Research head Kim Sun duk said It is outrageous logic to argue that the apartment lease market will stabilize with the emergence of purchasing demand The only measures to stabilize key money prices involve supply Kim added indicating that transactions can only be encouraged through downward stabilization of prices rather than inflation of housing prices Experts are viewing it as a certainty that extension of the looser DTI restrictions will lead to a sharp rise in residential mortgages According to figures given by the Financial Supervisory Service on Tuesday the total amount of residential mortgages for depository institutions had increased by 4 9 trillion Won as of December the highest level since the 5 1 trillion Won increase in November 2006 when talk of a real estate bubble was intense Banks mortgage balance also set a new record at 379 3 trillion Won The scale of household loans has increased particularly quickly since the August 29 real estate measures last year centering on the temporary lifting of DTI restrictions With an additional rise in interest rates expected to accompany the trend of rising consumer prices in 2011 an increased interest burden for households appears inevitable Financial authorities who went so far as to create a task force team toward a soft landing in household debt are reluctant to push the extension of looser DTI restrictions If we do not bring back DTI this time market expectations for the measures will change a financial official said This will be taken a sign of rising housing prices and the abolishment of regulations and household debt will go through the roof the official warned Please direct questions or comments to englishhani hani co kr 세상을 보는 정직한 눈 한겨레신문 구독 | 한겨레21 구독 공식 SNS 계정 트위터 www twitter com hanitweet 미투데이 http me2day net hankyoreh ⓒ 한겨레신문사 무단전재 및 재배포 금지

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