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Korea sees rebound in housing market

Housing prices in South Korea are picking up slowly, as the new finance minister nominee says he will consider changes to help prospective homebuyers.

The average house prices across the country rose by 0.9 percent in the first half of 2014, after a 0.2 percent drop in 2013, according to data compiled by KB Kookmin Bank.

Mortgages taken out by homebuyers are also growing, indicating a rebound in the country’s real estate market, industry watchers said.

Industry data showed that mortgage loans issued by seven major banks, including KB Kookmin, Shinhan, Woori and Hana Bank, stood at a total of 295.2 trillion won ($290 billion) in June, up from 286.3 trillion won ($281 billion) in December 2013.

“Housing sales are likely to grow and housing prices are also set to keep rising in the latter half of this year,” a local banking official said.

The upbeat market forecast comes after Choi Kyung-hwan, who was tapped as deputy prime minister for economy and minister of strategy and finance, hinted at easing regulatory limits for mortgage lending to help people buy property.

The Park Guen-hye administration has been focused on improving the housing market, which has been a drag on the country’s economy, in order to buoy consumers’ spirits and give an economic boost. In the meantime, economists project the country’s GDP growth will slow in the final three months of the year.

To boost housing sales, the new finance minister nominee hinted during his confirmation hearing last week at revising the current loan-to-value and also debt-to-income ratio rules for mortgage loans, which have remained unchanged for more than a decade.

The three-term Saenuri Party lawmaker indicated that both LTV and DTI limits needed to be eased and by expanding mortgage lending to homebuyers, he said, the housing market would start to pick up with more people buying homes, which in turn would push up housing prices.

The central bank is also preparing to support real-estate market recovery.

Current mortgage interest rates at local major lenders are between 3.46 and 3.83 percent, down 0.1 percentage point from December 2013.

But mortgage applicants may also benefit from lower interest rates later this year, as Bank of Korea Gov. Lee Ju-yeol recently hinted at a possible cut in its base interest rate, citing growing downside risks to the country’s economy.

There are, however, growing concerns about the possible side effects. Experts, in particular, are wary of rising household debt.

They claim easing the LTV and DTI regulations coupled with a fall in interest rates would boost the housing market, but could further strain household debt, which surpassed 1,000 trillion won ($936 billion) at the end of 2013.

By Oh Kyu-wook (