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Seoul's anti-debt steps not to weigh on builders: analysts

All Headlines 10:55 August 26, 2016

SEOUL, Aug. 26 (Yonhap) -- South Korea's latest measures against soaring household debt are unlikely to impact large private builders much as they are focused on curbing the supply of new apartments by a state housing developer, analysts said Friday.

In a bid to tackle snowballing household debt, Seoul announced a package of measures Thursday that calls for the development of fresh residential areas and scale down of the supply of new apartments by state-owned Korea Land and Housing Corp. (LH), among others.

In a note to clients, Meritz Securities Co. said the measures are unlikely to weigh heavily on large construction companies down the road.

"The anti-household debt measures center on restricting LH's development of residential areas," said Park Hyeong-ryeol, a researcher at the brokerage house. "It will not affect much large construction firms as they are focused on rebuilding and redevelopment."

Kim Se-ryeong, an analyst at KB Investment & Securities Co. echoed the view, saying the latest measures will likely have a limited impact on the construction sector.

"Following the announcement of the measures, shares of major builders finished sharply higher," Kim said. "The market has already factored in related risks as banks have been tightening mortgage-lending rules since the start of the year amid supply restrictions."

Large construction companies, which have ample liquidity and hold their own residential sites, are expected to lead the housing market due to tougher restrictions on LH and new home-backed loans, the analyst said.

Samsung Securities Co., affiliated with South Korea's top conglomerate Samsung Group, struck a sanguine note, predicting the measures will likely have a positive impact on investor confidence, contrary to previous fears.

"Construction shares have been sluggish recently out of concern that the government may try to tighten the resale of apartment ownership rights, putting a damper on the housing market," said Yoon Seok-mo, a Samsung Securities researcher. "But the package lacks such a measure, while restrictions on mortgage loans are unlikely to dampen apartment transactions."

Meanwhile, Eugene Investment & Securities Co. said the government measures against household debt will likely have a limited impact on bank stocks as the delinquency rate of household loans remains low despite their recent surge.

In a report released Thursday, the Bank of Korea said overall household debt jumped 11 percent on-year to 1,257 trillion won (US$1.13 trillion) as of end-June despite tighter loan screening.

Surging household debt has been a bugbear for policymakers as it is seen as a "time bomb" for Asia's fourth-largest economy that has been losing steam amid falling exports and weak domestic demand.

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