South Korea to tighten real estate loan rules, boost housing supply

South Korea's government is tightening its grip on real estate policy loans and scaling back guarantees for jeonse loans, aiming to prevent excessive expansion and manage risks. The revisions, announced after a State Council meeting, include adjusting income requirements for policy loans to better align with the median income standard, considering inflation and household size.

Currently, loans like the Didimdol loan have maintained an income ceiling of '60 million won or less for a couple's annual income' since their introduction in 2014. While income criteria have been relaxed for multi-child households, persistent criticism pointed to insufficient reflection of price increases and changing family structures.

The government also plans to strengthen overall management of policy loan volumes. Interest rates will be adjusted to maintain an appropriate spread between commercial bank mortgage rates and fund loans during periods of rising market interest rates. This measure aims to prevent rapid demand surges and premature depletion of funds due to policy loan rates not reflecting market interest rate hikes.

Furthermore, the jeonse loan guarantee system will be revamped. For borrowers other than young, homeless individuals and vulnerable groups, the guarantee ratio will be gradually reduced to decrease the overall scale of jeonse loan guarantees. However, protections for young and vulnerable groups will be enhanced, including expanded provision of risk information before jeonse contract signing.

In terms of housing supply, construction is set to begin on 12,000 units in the third new cities, including Namyangju Wangsuk (6,800 units) and Incheon Gyeyang (1,100 units), in the latter half of this year. For key sites like Taereung and Seongnam, where construction schedules were advanced by one year to 2029, procedures such as preliminary site surveys and relocation plan establishment will be expedited in the second half of the year. The government is also considering financial support and deregulation for redevelopment and reconstruction projects, such as easing the consent rate for remodeling project approvals from 75% to 70%.

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We are looking into financial support that is being requested by both construction companies and union members. It will be announced around the end of the month.