The Korean government is cracking down on debt-fueled property bubbles seen in some areas of the country.
The government announced a new set of measures on Monday, targeting a total of 40 hotspots-- which include districts in Seoul, Gyeonggi-do Province, and the cities of Sejong and Busan.
To reduce speculation, property owners and redevelopers in those areas will face tougher procedures in reselling and buying homes.
Also, two major loan regulations have been tightened up in the designated areas.
The loan-to-value ratio, which allowed up to 70 percent of a property's value to be financed through loans, will be lowered to 60 percent,. and 50 percent for the debt-to-income ratio.
However, the previous rates will be maintained for low-income households and actual homebuyers.
The government has also decided to enforce the debt-to-income ratio on collective mortgages, which were granted without income
screening as they're brokered en masse through construction companies selling off new properties.
But will this be enough to cool down the overheating?
"The caps on redevelopment and collective loans could lower investment from big-time property dealers, but inflated prices are unlikely to drop significantly as a result of the new policies, which are designed to curb excessive speculation."
Since mortgage rates were loosened in 2014, apartment prices and lump-sum deposit rates have soared by more than 20 percent and over 50 percent respectively.
"Soaring property prices were reinforced by easy loans … which not only fueled real estate speculation but also saddled numerous families with debt … in exchange for access to homes they couldn't have otherwise afforded in areas like Gangnam and this district of Bundang."
The annual growth of household debt has hit double digits since 2014, hitting over one trillion U.S. dollars.
Experts say to effectively rein in the housing market and household debt, the government must introduce a more efficient mortgage-screening system such as a debt service ratio as well as increase monitoring of non-bank institutions that issue loans with high interest rates.
Oh Soo-young, Arirang News.