Government Measures to Regulate the Rapid Rise in Real Estate Prices and the "Stepping Stone Loan" Regulations for Homebuyers

 

Ministry of Land, Infrastructure, And Transport 

1. Real Estate Regulation Policies of the Korean Government

1) Korean apartment's high price 

Among the many challenges Korea faces, the rise in apartment prices has been identified as a major cause of the country’s severe household debt. 

When the supply of apartments is insufficient relative to actual housing demand, economic logic dictates that the price of apartments, as a commodity, naturally increases. 

This is a common phenomenon observed in countries like Canada, the United States, and across Europe, and is not a problem unique to Korea. 

However, unlike these other nations, Korea is experiencing a distinctive phenomenon. This is the misguided desire to accumulate wealth through unearned income by taking advantage of rising apartment prices. 

This so-called "get-rich-quick" mentality is evident in the current phenomenon where the price of a 33-pyeong (approximately 99 square meters) apartment in Seoul's Gangnam district has skyrocketed to a staggering 6 billion won. 

2) Gap investment

Many believe that if they take out a loan from the bank to cover the difference between their current assets and the cost of purchasing a better apartment, they will eventually reap unforeseen capital gains when apartment prices surge. 

If this strategy succeeds, one could earn several times, or even dozens of times, more unearned income than what they would earn through a lifetime of labor. 

This has already proven to be a highly tempting allure for those who either profited from or observed the sharp rise in apartment prices around 2020 in Korea. This phenomenon is known as "Gap investment," and a significant factor in the rise of apartment prices has been the role of "jeonse loans"—a unique system only found in Korea—that makes Gap investment possible.

2. Government Measures to Regulate the Rapid Rise in Real Estate Prices and the "Stepping Stone Loan" Regulations for Homebuyers

1) Loan cut

In response to the sharp rise in apartment prices around 2020, which was fueled by unearned income through Gap investments, the Korean government has taken steps to curb this trend by placing restrictions on jeonse loans, a unique system in Korea that enables Gap investment. 

Adjusting the jeonse loan system to a more reasonable level is an essential factor in halting the rise in apartment prices. 

Since the increase in loan volume, caused by loans for Gap investments, has been identified as a key driver of rising apartment prices, it is reasonable to proceed with restrictions on general real estate loans, such as mortgage loans offered by commercial banks. 

Additionally, the "Stepping Stone Loan" for homebuyers, a system introduced to help ordinary citizens purchase homes, is one of the government's welfare benefits aimed at promoting housing stability. 

This program allows qualified individuals to receive home purchase loans from commercial banks at significantly lower interest rates than those offered to the general public. 

However, due to concerns over the rise in real estate prices caused by the increase in loan volume, the Ministry of Land, Infrastructure, and Transport recently decided to limit the Stepping Stone Loan, which is a typical policy loan for low-income citizens aiming to buy a home. 

However, this decision sparked protests and confusion among actual homebuyers, leading the Ministry of Land, Infrastructure, and Transport to announce a temporary suspension of the Stepping Stone Loan regulations just one day after their initial announcement. 

Although relevant authorities unofficially explained their position on the restrictions, it caused a severe backlash from citizens who were preparing to buy a home, trusting in the stability of the policy. 

The Stepping Stone Loan is a typical policy loan aimed at housing stability, and despite the Bank of Korea lowering the base interest rate to 3.25% on October 10th, commercial banks have not followed suit. 

2) The Stepping Stone Loan

Instead of reducing interest rates on mortgage loans in line with the central bank’s rate cut, they have raised them, with current mortgage interest rates now soaring to around 7%. If left unchecked, requiring low-income individuals to bear the burden of the 7% interest rate from regular banks, which is effectively a high interest rate, would make it nearly impossible for them to afford homeownership, especially when they are already under financial pressure. In contrast, loans for Gap investments or jeonse loans are typically utilized by those with relatively more financial capacity. The Stepping Stone Loan, on the other hand, targets individuals with limited financial means, making it fundamentally different in terms of policy direction and the financial capacity of the beneficiaries. The Stepping Stone Loan for low-income citizens should remain in place, as it provides a real opportunity for those with insufficient funds to buy their own home.