Housing Loan Cap at 600 Million Won Creates Market Disruption, Seoul Property Stabilization Hopes and Concerns

Immediate Market Impact of New Restrictions

One week after the Lee Jae-myung administration implemented its 600 million won cap on housing mortgage loans to stabilize Seoul property prices, the real estate market is experiencing significant disruption. With purchase cancellations and contract withdrawals surging, experts are noting both positive stabilization effects and concerning market contraction.

The June 27 real estate measures, centered on the 600 million won mortgage cap, represent ultra-strong regulations that limit total loan amounts regardless of income or property value. This policy targets the top 10% of borrowers and is central to the government's plan to reduce annual household debt growth by 25% from the projected 50 trillion won increase.

Given that Seoul's average apartment price stands at 1.4 billion won, the 600 million won restriction effectively limits market participation to buyers with substantial personal capital. Investors who planned gap investments—leveraging small down payments with large loans—are particularly affected.

Transaction Freeze and Market Withdrawal

The Gangnam area has experienced a complete "stop" in transaction inquiries. Real estate industry sources report consecutive contract cancellations in districts like Yeongdeungpo and Seongdong, with even property owners postponing sales decisions.

Gangnam District's mortgage loan growth rate dropped to 1.5%, significantly down from 5.5% in the latter half of last year. Seocho District also showed substantial decline from 4.7%. These figures demonstrate that lending restrictions are translating into reduced transaction volumes.

Cash-strapped buyers are struggling to secure down payments even after winning housing lotteries, leading to increased lottery forfeitures. One real estate official lamented that "with gap investment blocked, there are no alternatives."

Enhanced DSR Stage 3 Implementation

July 1 brought the additional implementation of "Stage 3 Stress DSR (Debt Service Ratio)," further tightening lending regulations. This stress test incorporates interest rate increase scenarios, more rigorously evaluating borrowers' repayment capabilities.

Banking sector institutions announced plans to reduce household loan growth targets by 50%, signaling stricter loan screening processes. Additionally, mandatory residency within six months of property purchase using loans aims to eliminate speculative real estate transactions.

Complete Multi-Property Owner Loan Blockade

The measures include complete mortgage loan blockade for multi-property owners, intended to eliminate unearned income through multiple property ownership and encourage housing use solely for actual residence.

Even stability-purpose housing loans face restrictions with 1 billion won caps, demonstrating the government's strong commitment to suppressing overall household debt growth.

Stabilization Expectations and Market Concerns

The government expects these measures to stabilize rapidly rising Seoul property prices, particularly by eliminating speculative forces and creating a sound housing market centered on actual demand.

However, concerns about excessive market contraction due to overregulation are emerging. Worries about potential price declines and negative impacts on construction and related industries are being raised.

Suburban Area Spillover Benefits

Meanwhile, outer Seoul areas are expected to benefit from increased demand as the 600 million won restriction makes expensive Seoul properties inaccessible to many buyers. Real estate industries in Gyeonggi Province and Incheon anticipate this demand transfer effect, with inquiry volumes reportedly increasing.

Policy Context and Future Outlook

The Lee Jae-myung administration's real estate policy demonstrates strong determination to address property price increases, historically considered an Achilles' heel for Democratic Party governments. However, considerable time will be needed for policy effects to materialize.

Markets are also watching for potential additional government measures, requiring observation of real estate market changes over the coming months. The success of these policies will largely depend on whether they achieve the intended balance between market stabilization and economic vitality.

This aggressive approach reflects the new administration's commitment to addressing housing affordability while managing the complex dynamics of South Korea's real estate market.

Original: https://trendy.storydot.kr/realestate/housing-loan-cap-600-million-seoul-property-stabilization