The housing market has entered a correction phase since the 6·27 lending regulations, which capped the maximum loan limit at 600 million won. The government is expected to consider expanding regulated areas as it observes market conditions. Although the overheating of the housing market has temporarily halted due to strong demand suppression policies, experts point out that without housing supply measures, lending regulations could be seen as a 'half-hearted measure.' If the supply shortage continues over the long term, pent-up demand could lead to a collapse of the makeshift stability in the housing market.
On the 27th of last month, the government announced a household debt management plan centered around the metropolitan areas like Seoul. It was a strong measure that capped the loan limit at 600 million won regardless of repayment ability and collateral value. The overheating real estate market responded immediately. Right after the regulations were implemented, transactions slowed down and listings with decreasing asking prices emerged, particularly in the 'Han River Belt.'
◇Additional regulations possible if effects of lending regulations fade
Market views suggest that the lending regulations are not the end of the regulatory measures. There are predictions of additional regulations within the year. When announcing the lending regulation measures, the government noted, 'We plan to mobilize all available means to stabilize the market while closely monitoring the movements in the housing market with heightened vigilance,' adding, 'We will actively consider additional designation of regulated areas if necessary.'
The market anticipates that the Ministry of Land, Infrastructure and Transport will soon expand the regulated areas as the effects of the lending regulations diminish. The areas currently limited to the three districts of Gangnam (Gangnam, Seocho, Songpa) and Yongsan are most likely to be expanded to include Mapo, Seongdong, and Gangdong.
Yoon Ji-hae, chief researcher at Real Estate R114, said, 'It seems that the next step will be broadening the regulated areas, not just in the second half of the year.' She added, 'Based on the measures that have been introduced so far, land transaction permission systems and speculative overheating districts are possible.' Continuing, she noted, 'Since the government has initiated these regulations, it’s unlikely that there will be sudden relaxation of them. The level of regulation may continue to change, so we need to closely monitor the direction of policies.'
Kim Hak-ryeol, director of Smart Tube, also remarked, 'We expect to see the expansion of land transaction permission areas, speculative overheating districts, and adjusted target areas.' He stated, 'Since both tax regulations and lending regulations have already been implemented, there’s nothing more left to come.'
◇Difficult to stabilize the market with demand suppression measures…urgent housing supply needed
Strong demand suppression measures imposed due to loan restrictions may cool down the overheated housing market in the short term, but experts agree that without supply, this will merely be a temporary fix. They assert that sufficient housing supply must occur, especially in the metropolitan areas like Seoul where demand is concentrated, to achieve fundamental market stability.
Kim Hyo-sun, a real estate specialist at NH Nonghyup Bank, forecasted that '(This lending regulation) will be effective as a short-term defense to quell market overheating' and added, 'In the long run, overall policy direction, including supply, tax policy, and housing finance, needs to be considered in tandem for restoring market balance and a virtuous cycle structure.'
Yang Ji-young, a specialist at Shinhan Premier Pathfinder, pointed out, 'The phenomenon of market distortion due to transaction blocks is too significant.' She stated, 'Transactions need to occur with loans, and commodities need to be bought and sold; however, predictions for (the second half of the market) are uncertain. It has become a situation where it is impossible to buy due to a severe lack of supply.'
The shortage of housing supply is becoming a reality. According to statistics from the Ministry of Land, Infrastructure and Transport for May, core indicators of housing supply, including approvals, starts, and completions, have all decreased. The cumulative approvals in May stood at 110,438 units, down 12.3% compared to the same period last year. While the cumulative performance in Seoul increased by 83.6% to 19,329 units compared to the same period last year, it still reflects a sharp decrease of 32.4% compared to the five-year average.
In terms of starts, the cumulative number in May was 74,276 units, a decrease of 30.3% compared to the same period last year. Completions also dropped to 165,496 units by May this year, down 9.9% year-on-year. During the same period, sales fell sharply by 41.7% to 52,982 units.
There are predictions that if sufficient signals for housing supply do not come from the government, a renewed price increase may be observed, particularly in regions where new dwellings are scarce.
Ha Seo-jin, chief researcher at Hana Financial Research Institute, stated, 'Despite strengthened lending regulations in the second half of the year, it is expected that polarization will deepen due to concentrated buyers resulting from the shortage of new dwellings in the metropolitan area along with record-high prices.' He explained, 'While the maximum loan amount for mortgages in the metropolitan area and regulated regions is capped at 600 million won, transactions may contract; however, transactions around key areas in the metropolitan may continue.' He also predicted, 'While price pressure prevails in the provinces, depletion of listings may be prolonged in some areas where supply is lacking, yet the nationwide trend will remain upward.'
Both the government and the National Assembly acknowledge that supply is necessary for stabilizing the housing market. Accordingly, the outline of housing supply measures is expected to be revealed as early as next month. The government's housing supply measures are likely to focus on the third phase of new town development and the redevelopment of first-phase new towns that can yield immediate tangible results. Plans to boost supply in urban areas through reconstruction and redevelopment are also anticipated. It is expected that the supply of housing will mainly consist of tailor-made public housing for various demanders.
Lee Sang-gyeong, the first vice minister of the Ministry of Land, Infrastructure and Transport, emphasized the need for supply, stating in his inaugural remarks, 'We must continuously strive to expand housing supply for residential stability and to provide affordable housing for young people and newlyweds who do not own homes, as well as to enhance public rental housing efforts from the perspective of housing welfare.'
Jin Sung-jun, the policy chair of the Democratic Party of Korea, stated, '(Instead of planning new housing supply plans) we should quickly promote the projects already planned and announced during the Moon Jae-in administration, such as the third-phase new town development plan and public redevelopment plans.' He added, 'While it was a good move to implement this lending regulation policy, it must be followed by supply plans.'