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(2nd LD) Gov't to tighten lending rules on homes

All News 15:34 June 19, 2017

(ATTN: ADDS analysts' comments in last 5 paras)

SEJONG, June 19 (Yonhap) -- The South Korean government said Monday it will tighten lending rules on homes in some designated speculative areas starting early next month in the first move by the new Moon Jae-in administration to curb real estate speculation.

The measures, which will be put into effect from July 3, came as the nation's household debt, including credit purchases, rose to a record 1,359.7 trillion won (US$1.2 trillion) at the end of March.

Finance Minister Kim Dong-yeon has said the property market in Seoul is showing signs of overheating.

Under the measures, the loan-to-value ratio in Seoul, Gyeonggi Province, some areas in Busan and the administrative capital of Sejong will be lowered to 60 percent from 70 percent.

The debt-to-income ratio in the areas will be marked down to 50 percent from 60 percent.

The Ministry of Strategy and Finance, the Financial Services Commission and the Ministry of Construction and Transportation jointly announced the measures.

The changes will also limit the resale of newly built homes in all areas of Seoul to curb property speculation.

The tighter lending rules will not be applied to people who seek to buy a home with a price of 500 million won or less, officials said.

Park Seon-ho, head of the home and land division at the construction ministry, said the measures are aimed at curbing property speculation.

The government said it would consider drawing up more measures if the property market shows no sign of cooling down.

(2nd LD) Gov't to tighten lending rules on homes - 1

Jin Woong-seob, chairman of the Financial Supervisory Service, said in a statement that the pace of mortgage lending growth showed signs of a slowdown early this month ahead of Seoul's announcement on tightened lending rules.

In the first nine days of this month, household lending by banks rose by 600 billion won, compared with a growth of 1.9 trillion won for the same period last year, according to the financial regulator.

During the nine-day period, household lending by second-tier financial institutions fell by 200 billion won, compared with an expansion of 1.5 trillion won for the same period last year.

With the U.S. Federal Reserve raising its key interest rates last week, Jin said worries persist in South Korea that local lending rates will pose a financial burden on household borrowers.

Some analysts said the fresh property measures were in line with expectations, but it may not be enough to cool down apartment prices in Seoul's affluent Gangnam district.

Cho Kyu-rim, a senior researcher at Hyundai Research Institute, said the measures would help the government slow down the growth pace of household debt.

"Financial authorities must maintain this policy to control the quality of household debt," Cho said.

Shin Yong-sang, senior researcher at the Korea Institute of Finance, said the new measures would have a negative impact on the construction sector next year.

"The economy was led by construction, although exports recently showed a recovery," Shin said. "The construction sector may be affected by this move."

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