South Korea will ease mortgage lending rules and extend tax breaks to encourage buyers back to the property market after home sales slumped to the lowest level in almost a year and a half.
Banks will be allowed to ease restrictions on mortgage loans for first-home buyers or owners of one home temporarily until the end of March, the government said yesterday in an e-mailed statement.
The waiver period for taxes on home trading will also be extended by two years until the end of 2012, according to the statement by the Ministry of Strategy and Finance, the Financial Services Commission and the Ministry of Land, Transport and Marine Affairs.
The government’s previous measures, announced in April, failed to spur property transactions, worsening construction companies’ finances.
The number of homes sold dropped 7.3 percent from a year earlier in the first seven months of this year, and the number of transactions last month was the lowest since February last year, according to statistics compiled by the land ministry.
“The measures will help those in the middle class or lower buy homes at a time when the housing prices are stabilizing,” the government said in the statement.
Banks can extend as much as 50 percent of a borrower’s annual income for purchases of homes in Seoul and 60 percent for areas outside the capital under the so-called debt-to-income limit.
That cap will be temporarily scrapped for buyers of homes in areas outside the so-called “speculative zones,” the government said.
“Raising a cap on mortgage loans will do little for people and companies when the central bank is raising interest rates,” said Kim Jae-eun, an economist at Hyundai Securities Co in Seoul.
“This is just sending inconsistent policy signals to the market,” Kim said.
The Bank of Korea increased its benchmark interest rate to 2.25 percent from a record-low 2 percent last month, and signaled more hikes.
The construction industry had its biggest contraction since at least 2008 in the second quarter, according to last month’s data from the Bank of Korea. Construction shrank 0.8 percent over the three months through June, the third drop in four quarters.
The decline contrasts with 1.5 percent growth in South Korea’s GDP.
Combined second-quarter profit at local lenders plunged 34 percent from a year earlier after they set aside extra loan-loss reserves to help construction and shipbuilding companies restructure debts, the Financial Supervisory Service said on Aug. 3.
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