Gov't calls 30-40% loan-to-value 'excessive' as Dongtan, Giheung, Guri face tighter mortgage limits from Wednesday

The government designated three Gyeonggi Province areas — Hwaseong's Dongtan-gu, Yongin's Giheung-gu and Guri — as regulated zones (speculative overheating districts and adjustment target areas) and land transaction permit zones, saying it does not expect the recent surge in home prices to spill over into nearby unregulated areas. Officials also clarified the lending standard under the tightened rules, saying that even borrowing 30 to 40 percent of a home's value constitutes excessive debt.

The Ministry of Land, Infrastructure and Transport said Tuesday that in Hwaseong's Dongtan-gu and Yongin's Giheung-gu, price expectations tied to the semiconductor industry boom and improved transit access — including the opening of the Greater Seoul Express Railway (GTX)-A line — have sustained upward pressure on home prices, while Guri has seen continued price gains driven by demand for transit-oriented areas close to Seoul. "To block speculative buying, protect genuine end-users and respond to overheating in the housing market, we added the designations of speculative overheating districts and adjustment target areas through the Residential Policy Deliberation Committee," the ministry said.

Lee Yu-ri, head of the ministry's housing policy division, said at a background briefing that the likelihood of further price increases spreading to other municipalities was low. "Every time we designate regulated zones, talk of a balloon effect follows," Lee said. "There are cautious aspects to consider, but for now we believe any additional balloon effect will be limited — though we plan to continue monitoring the market closely."

Lee noted that the Oct. 15 measures last year covered a broad range of areas, whereas this round targeted specific districts where prices had risen sharply due to factors such as semiconductor performance bonuses and GTX route access. "We think the probability of price increases spreading very broadly is low," she added.

Lee also said that expanding housing supply is the most direct solution to curbing sharp price rises, but that supply always involves a time lag, which remains a challenge. "That is why we announced a non-apartment supply plan at the end of May," she said. "Officetels and knowledge industry centers have the shortest supply lead times, and we are using those as a complementary approach."

Lee further noted that a significant number of buyers are selling shares to purchase homes, and that excessive borrowing is being discussed in that context. "We are judging whether borrowing is excessive based on a threshold of 30 to 40 percent of the home price," she said. Given that the average actual transaction price for an 84-square-meter unit at the Lotte Castle complex near Dongtan Station runs around 2 billion to 2.2 billion won ($1.43 million), borrowing 600 million to 900 million won to finance a purchase would be considered excessive debt under that standard.

The following is an edited transcript of the question-and-answer session.

— It has been several months since the designation criteria were met. Was the designation too late?

= We operate quantitative designation criteria, but meeting those criteria does not automatically trigger an immediate designation or removal. We watched the overall situation and made a comprehensive judgment. Some areas showed price increases earlier, but there were intervening issues such as the heavy capital gains tax surcharge, so we monitored the broader market trend and decided to proceed with the designation at this time.

— Are there other areas beyond the three designated this time that also meet the quantitative indicators for regulated zone status?

= For adjustment target areas, the key criterion is whether the home price increase rate over the past three months exceeds 1.3 times the consumer price inflation rate. The three areas designated this time met that 1.3-times threshold. Other areas with high price increases did not meet the 1.3-times standard and were therefore not considered. Meeting the criterion for one month does not trigger an immediate designation — we also weigh transaction volumes, subscription competition rates, permit and supply conditions, homeownership rates, and qualitative factors such as development catalysts driving price increases in a given area.

— Home prices in Dongtan 2 new town have risen sharply, but those in Dongtan 1 new town have not risen as much, which could cause frustration over the blanket designation. Is there any intention to apply a more targeted, pinpoint designation?

= We are aware that there are calls for a more pinpoint approach. However, when assessing market conditions, we rely heavily on quantitative indicators, and in terms of price and transaction statistics, we consider the autonomous district level to be the minimum unit. Dongtan-gu was also separated into its own district in February, which is why we designated it at the district level. A more micro-level approach is possible, but that too is a matter of judgment — and even then, some dissatisfaction is inevitable.

— Home prices have risen in many areas even after regulations such as the land transaction permit system were put in place.

= Views will differ on how effective the regulated zone designations and the land transaction permit system have been. That said, if we consider what the market would look like now had the Oct. 15 designations not been made, demand for purchases through loans or gap investment appears to have fallen considerably since the regulated zone designations took effect — so overall, we judge that the measures have contributed to market stabilization.