South Korea eyes curbs on jeonse loans for non-resident homeowners amid housing price concerns

The South Korean government is reportedly considering new regulations on jeonse (lump-sum deposit) loans for homeowners who do not reside in their regulated-area properties. As of late March, these "non-resident 1-homeowners" had outstanding jeonse loans totaling approximately 4.9 trillion won (about $3.6 billion) across 30,000 cases within Seoul and surrounding경기 areas designated as regulated zones. This practice has been identified as a potential driver of rising housing prices.

These loans are taken out by individuals who own an apartment in a regulated area but choose to live in a different rented property, often for reasons like children's education or job transfers. While the Financial Services Commission has previously signaled intentions to regulate such loans, concrete measures have yet to be finalized. However, President Yoon Suk-yeol's recent announcement of upcoming comprehensive real estate measures has intensified speculation that these jeonse loans will be targeted.

Several regulatory options are being discussed. One possibility is further tightening the existing loan limit for 1-homeowners, which was standardized at 200 million won per institution in September 2020. Another approach involves expanding the application of the Debt Service Ratio (DSR) regulations to jeonse loans, which would factor the interest payments on these loans into a borrower's overall debt repayment capacity. Reducing the guarantee ratios provided by public institutions like the Korea Housing Finance Corporation and the Korea Housing & Urban Guarantee Corporation is also being considered, which would effectively lower loan limits by increasing banks' risk exposure.

A significant challenge lies in differentiating between speculative investment and genuine necessity. Critics worry that overly broad regulations could penalize individuals who are unable to reside in their owned homes due to unavoidable circumstances. The government acknowledges this difficulty, with a senior Financial Services Commission official stating that the key is to avoid regulating genuine demand while curbing speculative behavior. The potential impact on the overall rental market, possibly increasing the burden on tenants, is also a factor authorities are weighing as they formulate their policy.

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The key is to avoid regulating genuine demand while curbing speculative behavior.