Government’s measures to boost housing market transactions
2010/09/14 2 Comments
Gov’t Measures to Boost Property Market in Korea
The Korean government has announced measures to stimulate housing market transactions in non-speculative demand and support low- and middle-income families to purchase their house to live in. The measures include temporary easing of debt-to-income (DTI) ratio regulation, which largely accounts for mortgage lending. With the temporary deregulation of DTI, financial institutions are allowed to decide on their own on amount of loans they can provide.
The measures are to boost housing market in Korea since a significant fall in transaction volume was detected. Many new homes remain unsold or unoccupied. Moreover, the whole industry related to the housing is in severe financial troubles.
Housing Market Transaction Volume (compared to 06~09 months)
(Source: Financial Services Commission)
 Stimulating Housing market Transaction in Non-Speculative Demand
The government has decided to temporarily abolish its DTI regulations until end of March next year, leaving the application of DTI rules at financial institutions’ discretion; therefore, mortgage loans will be decided upon each financial institution. However, the government has decided to maintain current Loan-to-Value (LTV) ratio, which puts a price of mortgage loan based on asset values.
Tax benefits will also be extended to stimulate property market transactions. Capital gain tax relief for multiple home owners will be extended to two more years. In addition, 50% real estate acquisition & registration tax will be exempt.
 Expanding Financial Support for Low-Income Families to Rent a House
The government will raise credit limits for low-income households from 49 million to 56 million won to financially support them to rent a house. Families with three children or more, the credit line will be expanded from 56 million to 63 million won. Also, the government will raise its guarantee limit for the key money particularly for low-income households with their annual income less than 50 million won. The government will also provide the landlord with loan guarantee up to 50 million won per house to help them return the key money to the tenant when their contract expires.
 Providing Liquidity Support for Construction Companies
The government plans to support construction companies who are temporarily experiencing liquidity crunch by issuing a total 3 trillion won of P-CBO. A P-CBO is ABS (Asset Backed Securitization) based on corporate bonds. After security companies acquire bonds of construction companies, SPC (Special Purpose Company) would issue AAA credit rating CBO (Collateralized Bond Obligations), helping construction firms raise fund more easily. The government will begin to issue 500 billion won P-CBOs starting from the second half of this year and then may proceed with additional issue depending on market demands.
From these measures, an increase in housing market transactions and a relief for low-and middle-income households are expected. The government has emphasized that the measures will be taken temporarily to seek non-speculative transactions in the housing market, while still maintaining its stance on stable housing prices.