Korea to Free Greenbelt Land for 73,000 Homes Near Gangnam

* Editor's note: AI PRISM (Personalized Report & Insight Summarizing Media) is an AI-based personalized news recommendation and summary service developed with support from the Korea Press Foundation. It selects and provides six tailored news items for each reader type.

1. Korea to Free Gangnam Greenbelt; Suseo Rail Depot Among Likely Sites

Key summary: The government has formalized a plan to supply sites for 73,000 new public housing units by releasing greenbelt land in the greater Seoul area. Areas in and adjacent to Gangnam — the Suseo rail depot, the Segok and Jagok neighborhoods of Gangnam District, the Bangi neighborhood of Songpa District, and the Gambuk and Choi neighborhoods of Hanam — have emerged as likely candidates. MOLIT has already completed consultations with local governments and plans to announce candidate sites by early October at the latest, and the entirety of Yongsan Park is also under review as a site for supply in the city center. The ministry says it will apply a fastest-track model that shortens the construction period to 37 months from the current 68 months, aiming to stabilize home prices by building up latent demand.

2. Entering a Rate-Hike Cycle; Mortgage Capital Rules Set to Push Rates Higher

Key summary: With BOK Deputy Governor Yoo Sang-dae saying an additional rate hike is highly likely, a Citi economist projected that the base rate would reach 3.5% after 0.25-percentage-point hikes in August and November this year and one more increase early next year. From next year, the FSC will apply risk weights up to four times higher on mortgages for high-value, expensive homes and will require each bank to set aside an additional 1% in capital if the household-debt-to-GDP ratio exceeds 80%. In that case, the burden on the banking sector alone would reach 10 trillion won ($7.2 billion) next year, making it likely to be passed on through higher mortgage rates. Jeonse loans for non-resident single-home owners in the greater Seoul area and regulated zones will also be banned entirely from next year, potentially shifting about 9.3 trillion won ($6.7 billion), or 90,000 jeonse loans, into mortgage demand.

3. The Rates Strike Back; Fixed-Then-Floating Mortgages Jump 0.5 Percentage Point

Key summary: KB Kookmin Bank raised its fixed-then-floating mortgage rate to an annual 5.19% from 4.75%, and floating rates at the five major banks have risen to an annual 4.09% to 5.69%. Borrowers who took out fixed-then-floating mortgages in July 2021 will have to accept increases of at least 0.5 to 0.8 percentage point when their rates reset. The rate on Shinhan Bank's jeonse loans also jumped 0.7 percentage point to 4.51% from 3.81% at renewal, and home-purchase loan rates at secondary financial institutions such as Hyundai Capital rose by up to 1.9 percentage points from the previous month. Because a 0.25-percentage-point rise in mortgage rates increases all borrowers' annual interest burden by 1.8 trillion won ($1.3 billion), there is concern that the shock could be concentrated in the current market, where the share of floating-rate loans is at a record 62.3%.

4. Property-Driven China Deflation; Warning Lights for Korea Too

Key summary: Since the 2020s, China has cut off liquidity to real estate and sought to shift toward high-tech industries, but real estate development investment fell by an annual average of 8.9% over five years, dragging down the GDP growth rate by 1.3 percentage points. Warnings have emerged that Korea could follow in China's footsteps, where the aftereffects of deflation from deteriorating local finances, a downturn in domestic demand and oversupply have overlapped. Acquisition tax revenue in Gyeonggi Province fell 25.9% over four years, to 8.151 trillion won this year from 11.0036 trillion won in 2022, and the increase in employment in the first half of this year came to just 108,000 — less than half the initial forecast. Analysts say a vicious cycle in which a property slump leads to deteriorating local finances, then to weaker consumption and slower employment, could also form in Korea.