"July Loan Threshold Increase: Can It Contain Soaring Seoul Apartment Prices? [Loan Cliff] ①"

# South Korea's New DSR Rules to Tame Soaring Seoul Apartment Prices South Korea is set to introduce its third-phase stress-based Debt Service Ratio (DSR) regulation on July 1, aiming to combat the escalating apartment prices in Seoul. This new measure addresses the nation's growing household debt and seeks to temper the rapid price increases in Seoul and its surrounding metropolitan areas. # Escalating Debt and Housing Frenzy The surge in home transactions has led to a rapid increase in household debt. As of June 15, the Bank of Korea reports that the combined household debt of the country's five major banks reached nearly 746 trillion won, marking a 2.9 trillion won rise from the previous month. Financial authorities predict that June's total debt growth could hit 5.8 trillion won. This spike is largely due to falling interest rates and temporary adjustments in land transaction approvals in Seoul, boosting property-buying sentiment. # Understanding the Stress-Tested DSR The stress-based DSR determines individual borrowing limits by considering the loan's interest rate and an additional "stress rate" to simulate future cost burdens. This approach increases the annual interest costs in the calculation, raising the DSR ratio and effectively limiting the borrowing amount. Practically, this raises the barriers for securing loans. A stress rate of 1.5% will be applied to all household loans in financial institutions, with stricter thresholds for credit loans exceeding 100 million won. However, non-metropolitan areas will see a lower stress rate of 0.75%, deferred for six months until December 2023. These changes are expected to reduce mortgage loan limits by approximately 3% to 5%, depending on the loan type. For example, a borrower in Seoul earning 60 million won annually might see their adjustable-rate mortgage cap reduced by around 12 million won compared to the current second-phase stress DSR guidelines. # Persistent Price Increases The government's tightening of borrowing restrictions comes in response to a continuous rise in Seoul apartment prices, up for 16 straight weeks. The Korea Real Estate Board's nationwide weekly survey for the third week of June (as of June 19) shows Seoul's apartment prices increased by 0.13%, up from 0.10% the previous week. Key districts like Gangnam (from 0.19% to 0.26%), Seocho (from 0.23% to 0.32%), and Songpa (from 0.22% to 0.30%), known as the “Gangnam 3 districts,” along with Yongsan (from 0.15% to 0.16%), have led this trend. Despite being designated as land transaction approval zones since March 24, price growth has not slowed. Other districts, including Seongdong (from 0.18% to 0.21%), Yangcheon (from 0.13% to 0.22%), Yeongdeungpo (from 0.13% to 0.16%), Dongjak (from 0.12% to 0.13%), and Gwangjin (from 0.09% to 0.11%), also recorded gains. A Korea Real Estate Board representative noted, "Asking prices for properties, especially in key redevelopment zones and desirable complexes, continue to rise, leading to higher transaction prices,” adding, “Although some areas exhibit a wait-and-see attitude, upward momentum is citywide.” # Experts Skeptical of Price Stabilization Impact Real estate experts doubt the third-phase stress DSR will significantly stabilize prices. Concerns about housing supply shortages and expectations of a base rate cut due to economic downturns imply limited impacts on curbing home price growth. Kwon Dae-jung, a professor at Sogang University’s Graduate School of Real Estate Studies, stated, “The third-phase stress DSR may dampen investor demand due to tighter borrowing conditions, even if rates rise further.” However, he added, "Interest in luxury apartments and redevelopment projects in areas like Gangnam, with more regulatory exemptions, will likely persist." “Stringent loan restrictions alone won't cool soaring home prices,” Kwon emphasized. “With ongoing uncertainties in real estate policies, potential rent hikes, supply shortages fears, and rate cut expectations, regulatory measures will likely have a limited effect on price stabilization.”