On September 7th, the South Korean government announced a comprehensive real estate policy package that demonstrates its strong commitment to stabilizing the housing market. The "September 7th Real Estate Policy" represents a dual approach combining stricter loan regulations with massive housing supply expansion, aimed at cutting off speculative demand while increasing housing supply for genuine buyers.
For American readers unfamiliar with South Korea's real estate regulations, it's important to understand that the Korean housing market operates under much stricter government control than the US market. While American homebuyers typically secure mortgages through private lenders with minimal government interference, South Korea's government directly regulates loan-to-value ratios, debt-to-income ratios, and housing supply through state-owned enterprises.
The most significant change involves reducing the Loan-to-Value (LTV) ratio from 50% to 40% in regulated areas – a 10 percentage point decrease. To put this in perspective, this would be equivalent to requiring American homebuyers to make a 60% down payment instead of 50%, which would be unprecedented in the US market. This aggressive measure is interpreted as a strong response to continued speculative capital inflows despite the debt management reinforcement measures announced on June 27th. Furthermore, the government has completely banned mortgage loans for home purchases and rental business operators in the Seoul metropolitan area and regulated regions.
Jeonse Loan Limit Unification and Lending System Reorganization
The jeonse system, unique to South Korea, requires explanation for American readers. Unlike the American rental system where tenants pay monthly rent, Korean jeonse involves tenants paying a large lump-sum deposit (typically 50-80% of the property's value) instead of monthly rent. This deposit is returned at the end of the lease without interest, while landlords invest this money for profit.
Significant changes are also expected in the jeonse loan sector. The government has decided to unify jeonse loan limits at 200 million won (approximately $150,000) and restrict jeonse limits for single-homeowners to 200 million won in the Seoul metropolitan area and regulated regions. This aims to prevent excessive leverage use in the jeonse market, thereby stabilizing the rental market.
Notably, while the third phase of stress DSR (Debt Service Ratio) has been applied to mortgage loans, credit loans, and other loans since July 2025, it has not yet been applied to jeonse loans. This appears to be a policy consideration to alleviate jeonse housing shortages, though the possibility of introducing additional regulations cannot be ruled out depending on future jeonse market trends.
Metropolitan Area Housing Supply: 1.35 Million Units Over Five Years
The housing supply expansion plan announced alongside loan regulations is substantial in scale. The government announced it would supply a total of 1.35 million housing units in the metropolitan area over five years from 2026 to 2030. This corresponds to 270,000 units annually, 1.7 times more than the average supply volume of the past three years.
To provide context for American readers, Seoul's metropolitan area houses about 26 million people – roughly equivalent to the combined metropolitan areas of New York and Los Angeles. The scale of this housing construction program would be comparable to building all the new housing constructed annually in California, Texas, and Florida combined, but concentrated in a single metropolitan region.
This large-scale supply plan demonstrates the government's determination to mobilize all available means, including public land development, utilization of urban aging facilities and idle sites, and improvement of private supply conditions. The key point is transitioning to a system where LH (Korea Land and Housing Corporation) directly implements housing supply instead of selling housing sites to private developers, thereby accelerating supply speed and establishing a system where public entities recapture development gains.
This represents a fundamental change in supply entities beyond simply increasing supply volume. The strategic decision involves transitioning from a private-sector-dominated supply system to a public-led direct supply system, aimed at stabilizing pre-sale prices and enhancing predictability of supply volume. This would be equivalent to the US government establishing a federal housing corporation that directly builds and sells homes instead of relying on private developers – a concept that would be revolutionary in the American context.
Rental Reporting System Improvements and Enhanced Market Supervision
The rental reporting system, introduced to enhance transparency in the rental market, will be improved. The guidance period will be extended by one year until June 31, 2025, and fines will be reduced from the current 4-1 million won to a maximum of 50-20% of current levels. Housing with deposits exceeding 60 million won (approximately $45,000) or monthly rent exceeding 300,000 won (approximately $225) must be reported, with fines imposed for failure to report within 30 days of lease agreement or false reporting.
Real estate market supervision systems will also be significantly strengthened. Organizations will be established to actively respond to real estate crimes, with joint participation from the Ministry of Land, Infrastructure and Transport, Financial Services Commission, National Tax Service, National Police Agency, and Financial Supervisory Service. Through this system, investigations and prosecutions of real estate market disruption activities and illegal acts will be actively pursued, and planned investigations and tax audits of suspicious transactions will be strengthened.
For American readers, this level of government intervention and coordination would be comparable to having the Federal Reserve, IRS, FBI, SEC, and Department of Housing working together in a single task force to monitor every real estate transaction – a degree of oversight that would be politically unfeasible in the United States.
The September 7th real estate policy represents a comprehensive approach that clearly demonstrates the government's commitment to "cutting off money flow while building more houses and restoring market order." The policy balance is particularly noteworthy as it simultaneously pursues the contradictory goals of blocking speculative demand and protecting genuine buyers, while providing fundamental solutions through housing supply expansion in the long term. However, continuous monitoring is necessary regarding what effects these policies will have in the actual market and whether there will be any conflicting effects between policies.
This policy package reflects South Korea's unique approach to housing market management, where the government plays a much more direct and interventionist role compared to the free-market approach favored in the United States. The success or failure of these measures will provide valuable insights for policymakers worldwide dealing with housing affordability and speculation issues.
Original Korean Article: 정부 '9.7 부동산 대책' 발표, 대출 규제 강화와 135만호 공급 확대
0 Comments