Seoul, South Korea – South Korea is set to implement a series of new real estate policies in 2024 aimed at easing the burden of financial costs for homebuyers and expanding housing supply. However, concurrent regulations designed to manage household debt, such as the three-stage stress Debt Service Ratio (DSR), are also expected to come into effect, prompting prospective homebuyers to carefully consider factors like loan limits.
Starting in January, the early repayment penalty for home mortgages will be reduced by 50%. Additionally, the income eligibility requirements for newborn special loans will be relaxed, allowing for joint annual incomes of up to 250 million won. Those who have additional children after receiving a special loan will qualify for an additional preferential interest rate.
Furthermore, individuals with a single home will be eligible for tax benefits if they purchase a new home with a public assessment value of 400 million won or less in a declining population area. This benefit will also apply to the purchase of unsold new apartments with an area of 85 square meters or less and an acquisition cost of 600 million won or less in non-metropolitan areas.
The income tax deduction benefit for subscribers of the Housing Savings Fund with an annual income of 70 million won or less will be expanded to include spouses, allowing for deductions of up to 40% of the contribution amount, capped at 3 million won per year. Similarly, the tax-exempt income from interest on the Youth Savings Account will be expanded to include both the head of household and their spouse.
However, the government plans to introduce the third phase of the stress DSR in July, which will further tighten lending limits. The stress DSR is a regulatory measure that calculates loan limits by applying a stress premium to account for interest rate volatility, with the aim of proactively managing household debt. The first phase, which introduced a stress premium of 0.38 percentage points, was implemented in February 2023, followed by the second phase in September, which imposed premiums of 1.2 percentage points in metropolitan areas and 0.75 percentage points in non-metropolitan areas.
With the third phase, expected to impose premiums of 1.5 to 1.7 percentage points, borrowers with an annual income of 50 million won and a 30-year variable-rate mortgage could see their loan limits reduced by more than 50 million won compared to before the DSR was implemented.
Local real estate industry experts have consistently called for a differentiated policy approach between metropolitan and non-metropolitan areas, citing the widening gap between the soaring housing prices in metropolitan areas and the prolonged slump in the non-metropolitan market. While the government has pledged to relax regulations in non-metropolitan areas, specific details have yet to be announced.
Additionally, regulations on the construction industry are expected to be tightened. From June, a zero-energy building certification will be mandatory for private apartments with 30 units or more. This requires developers to install renewable energy facilities such as solar power to achieve a building energy self-sufficiency rate of 20% or more, which is expected to increase construction costs.
"While the government's announcement of easing regulations in non-metropolitan areas is encouraging, we need to wait and see the specific details of the relaxation and how it will be applied differentially," said a local real estate industry official.
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