[Editorial] New curbs, old fears

Korea Herald

8 hours ago

South Korea introduces strict loan limits as speculation surges in Seoul property market
Just 23 days into President Lee Jae Myung's term, the South Korean government has unveiled its most forceful intervention in years to tame a resurgent property market. On Friday, authorities introduced sweeping restrictions on household borrowing, marking the administration's first major policy initiative and offering early clues to its governing style.
At the core of the package is a strict cap on mortgage lending for property purchases in the capital region. Beginning this week, buyers will be limited to loans of no more than 600 million won ($440,000), regardless of income or property value. Additional measures include a six-month residency requirement for borrowers, a prohibition on multiple-home owners from securing new mortgages and tighter overall limits on household lending across the financial sector.
These curbs are without precedent in scope and are aimed at dampening expectations of further price increases, a psychological shift the government believes is necessary to slow speculative momentum.
The intervention comes amid clear signs of market overheating. Apartment prices in Seoul have risen for 21 consecutive weeks, with the most recent increase marking the steepest since 2018. Districts such as Seongdong, Mapo and Gangnam have led the surge, fueled by rising asking prices and a jump in buyer inquiries. The Bank of Korea's housing price outlook index rose to its highest level in nearly four years in June, reinforcing concerns about runaway sentiment.
Several forces have converged to drive demand. Political uncertainty eased following the June 3 presidential election, and President Lee's campaign pledge to shift away from tax-heavy regulation toward a supply-focused approach was seen by investors as a positive signal. Meanwhile, the Bank of Korea has cut its policy rate by 75 basis points since late 2024 and is expected to ease further in the second half of this year. Together, these factors have revived fears of a repeat of the 2017-21 property boom.
But the manner of the government's response has raised doubts. Shortly after Friday's announcement, the presidential office stated that the measures were not a presidential initiative, only to revise its stance later. The apparent disconnect between the Financial Services Commission and the presidential office sowed confusion at a critical moment. In a policy domain where timing and clarity are paramount, such missteps risk undermining credibility.
The Moon Jae-in administration's failure to rein in prices was not due to inaction — it introduced 23 housing measures — but rather a lack of consistency, poor communication and weak coordination. Buyers learned to anticipate reversals, interpreting restrictions not as deterrents but as temporary hurdles. For the Lee government, restoring confidence will require more than regulation.
Restricting credit is not a substitute for a comprehensive housing strategy. Thus far, no credible road map has been presented to expand supply through new construction, redevelopment or accelerated approvals. An across-the-board lending cap, regardless of income, may lock out middle-income buyers while leaving wealthier, cash-rich investors untouched. The unintended consequence could be a more regressive housing market.
Experts also warn that sharp restrictions, introduced while rates are falling and housing supply remains tight, are unlikely to reverse the upward trend. At best, they may slow the pace of price growth; at worst, they could exacerbate inequality and weaken household consumption.
Housing is not merely an economic issue — it is a test of political competence. Effective policy requires coherence, foresight and execution. The Lee administration's ability to manage these dynamics will shape not only real estate outcomes but also broader perceptions of its governing capacity. Announcing strong measures is a first step. Delivering them with credibility and balance will be the true measure of success.
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