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Bundang, Suseong designated as ‘hot’ areas

Sept 06,2017
The booming neighborhoods of Bundang District in Seongnam, Gyeonggi, and Suseong District in Daegu are the latest targets of stricter lending rules after the government determined the real estate markets in the two areas have become overheated.

The Ministry of Land, Infrastructure and Transport on Tuesday added Bundang and Suseong to a list of districts where prospective home buyers will be subject to higher scrutiny when applying for mortgages. They join a list of other popular neighborhoods in Seoul, Gwacheon and Sejong that the government says are rife with speculation, a month after President Moon Jae-in’s administration unveiled the country’s toughest real estate regulations yet.

In Korea, speculation on property is not as accepted as in other Asian markets like Hong Kong. Politicians who are found speculating on real estate suffer, and liberal governments routinely try to make it more difficult for profits to be made from it through measures like designating hot neighborhoods as “overly speculative” and raising lending standards there.

Bundang and Suseong have earned the same designation as Seoul because the areas meet the same conditions, namely average home prices rising faster than inflation and the number of bids exceeding the number of apartments five to one for more than two months.

Once the government designates an area as overheated, various limits are placed on real estate transactions, including restrictions on the buying and selling of apartments before they are built. Financial institutions must follow stricter guidelines on who can get mortgages. Typically, banks will lend to borrowers with a loan-to-value ratio of 60 to 70 percent and a debt-to-income ratio of 50 to 60 percent, but in a hot area, the standard is lowered to 40 percent, meaning more borrowers are excluded.

The rules take effect a day after a government designates an area as hot.

Bundang, just south of the Korean capital, may have enjoyed a windfall from tighter rules imposed on real estate transactions in Seoul. Previous governments have typically targeted the four most expensive districts in southern Seoul for real estate speculation, but Moon’s government has imposed limits on all 25 districts in the city. As a result, Bundang has seen home prices soar on higher demand.

Suseong in the central city of Daegu has experienced strong growth largely thanks to ongoing redevelopment projects.

And despite the government’s greatest efforts to curb property sales, Bundang recorded the strongest monthly growth in apartment prices last month, growing 2.1 percent compared to the previous month, while Suseong came in second with 1.41 percent.

Seoul, which saw apartment prices increase an average 0.33 percent a week prior to the government’s designation last month, has experienced weekly growth between 0.03 and 0.04 percent since.

The real estate market has interpreted the additional designations as a warning from the government that it will not idly stand by as investors flock to areas outside the purview of stricter regulations.


BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]