The government will provide mortgage loans worth 11 trillion won ($10 billion) next year to vitalize the sagging real estate market, the Ministry of Land, Infrastructure and Transport said Wednesday.

Further, the Land Ministry ― in coordination with the Finance Ministry ― plans to set the housing-purchase annual lending rates at between 2.8-3.6 percent in a bid to ease the financial burdens on middle- and low-income households.

The Land Ministry, however, said it would cut the number of new “Happy House” units from 200,000 to 140,000 while increasing the number of state-owned rental homes to 110,000, up from the previously planned 60,000 homes.

The Happy House project was created to build apartments in state-owned plots to provide cheaper homes to low-income households, an election promise by President Park Geun-hye. The government’s decision to downsize the project is seen by critics as a retraction of the election pledge.

Officials said the change was partly prompted by the fact that the building project has been facing strong opposition from neighbors who fear the low-cost homes may negatively affect the price of their own property.

“To minimize such criticism, the government has decided to combine three separate government-backed mortgages into one large government fund, which will enable economies of scale and thus a drop in overall interest rates,” a ministry official said.

He said the core point is that the government decided to provide 11 trillion won in government-backed mortgages for the second consecutive year.

During a weekly meeting of economic ministers chaired by Deputy Prime Minister and Finance Minister Hyun Oh-seok, also on Wednesday, the government blamed parliament for the apparent failure of the original plans to boost the real estate market, which were unveiled in April and August.

Since the inauguration of the new administration in February this year, the government has announced two sets of measures to help normalize the housing market and improve the living conditions of ordinary citizens, the Finance Ministry said at a news briefing.

But the comprehensive measures have not resulted in a sufficient revitalization of the market due to the delayed passage of key legislation by the National Assembly and limited improvement of overall consumer sentiment, they argued.

The measures since April come as Korea’s real estate sector has faced low demand, making homeowners reluctant to put their properties on the market and suffer high tax levies, while potential buyers, especially in the middle class, resort to renting homes.

This market disruption has led to a transaction slowdown, while rising “jeonse,” where tenants pay a hefty deposit refundable at the end of the contract, is further burdening low- and mid-income earners.

By Kim Yon-se (kys@heraldcorp.com)