The South Korean government will raise the threshold for the Special Bogeumjari Loan, a long-term mortgage loan that has recently come under scrutiny, starting the end of September to prevent a surge in household debt and selectively offer the benefits to the average person who is in actual need.

But many real estate experts are divided on the decision’s impact. Some say that the impact will be minimal as the budget for the special mortgage loan is almost exhausted, while others say the government is starting to curb the rise in housing prices that may be entering a bull market.

According to the real estate industry on Monday, the government will suspend sales of the general Special Bogeumjari Loan from September 27, which is four months earlier than the originally planned date of late January 2024. Only the preferential type of loan, which requires a combined annual income of under 100 million won ($75,386.36) for a couple and a home price of under 600 million won to be eligible, will be available moving forward.

The Special Bogeumjari Loan has been gaining traction among young property buyers as it allows them to borrow at a fixed interest rate regardless of their income.

But the government decided to suspend selling the loan as household debt increased for a fifth consecutive month. The decision was also necessary to trim the beneficiaries list as loan applications hit 37.6 trillion won, or 95.1 percent of this year’s supply target of 39.6 trillion won, as of September 8.

Some say that the special mortgage loan spurred a steep recovery in the housing market as the fixed interest rate of less than 5 percent and the debt service coverage ratio (DSR) exemption attracted a large number of homebuyers, particularly young people.

DSR, or the ratio of the principal payment to the total debt against the borrower’s annual income, is also a measure used to limit mortgage loans.

The number of apartment purchases among people in their 20s and 30s has significantly increased since the Special Bogeumjari Loan was launched in late January. According to the Korea Real Estate Board, the number of apartment sales transactions nationwide in the first half of this year was 203,437, of which 63,683, or 31.3 percent, were purchased by people aged 30 and under. This is the highest figure since the agency began compiling the relevant statistics in 2019.

Experts have mixed opinions on the government’s measure. “Considering that the purpose of introducing the special mortgage loan was to revive the sluggish property transactions amid a real estate downturn, the government must have concluded that the housing market has turned bullish and decided to curb it,” Urban Asset Management Co. chief executive officer Chung Seong-jin said.

There are also views that the impact remains to be seen depending on the follow-up real estate measures. “The impact of suspended provision of the loan is expected to be small as loan budget is almost exhausted,” according to Kim Sun-joo, professor of real estate asset management at Kyonggi University. “But we have to wait and see as demand may shrink if the government continues to signal tighter regulations.”

By Cho Seung-shin and Choi Jieun

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]