Move shows govt won’t let property market slump further: analyst

(SEOUL) 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. Shares of builders and banks surged.

Banks will be allowed to ease restrictions on mortgage loans for first-home buyers and owners of one residence until the end of March, the government said in an e-mailed statement on Sunday. The waiver for taxes on home sales will be extended by two years until the end of 2012, the government said.

The measures are the government’s second effort in four months to revive the market, after a programme to buy unsold houses failed to spur property transactions.

The number of homes sold dropped 7.3 per cent from a year earlier in the first seven months of 2010, and the number of transactions in July was the lowest since February 2009, according to statistics compiled by the land ministry.

‘The government’s measures were stronger than the market expected,’ said Hwang Seok Kyu, a banking industry analyst at Kyobo Securities Co in Seoul. ‘It’s a strong signal that the government won’t let the property market slump further.’

An index measuring 36 construction companies rose 1.4 per cent at the 3 pm close in Seoul trading, led by Daelim Industrial Co, which gained 5.7 per cent to close at 76,600 won.

KB Financial Group Inc, owner of South Korea’s largest lender, rose 3.1 per cent, while Woori Finance Holdings Co climbed 4.2 percent.

Banks can extend as much as 50 per cent of a borrower’s annual income for purchases of homes in Seoul and 60 per cent for areas outside the capital under the so-called debt-to-income limit.

That cap will be temporarily scrapped for buyers of homes, excluding those in three so-called ‘speculative zones’ in Seoul, according to the statement on Sunday by the Ministry of Strategy and Finance, the Financial Services Commission and the Ministry of Land, Transport and Marine Affairs.

‘The measures will help those in the middle class or lower buy homes at a time when the housing prices are stabilising,’ the government said in the statement. The temporary easing of lending rules won’t hurt lenders’ asset quality, according to the government.

The measures may have little impact on boosting the market while the central bank is poised to raise interest rates, because potential borrowers will be wary of rising debt, said Kim Jae Eun, an economist at Hyundai Securities Co in Seoul.

‘This is just sending inconsistent policy signals to the market,’ Mr Kim said.

The Bank of Korea increased its benchmark interest rate to 2.25 per cent from a record-low 2 per cent in July, and signalled more hikes.

The construction industry had its biggest contraction since at least 2008 in the second quarter, according to July data by the Bank of Korea.

Construction shrank 0.8 per cent over the three months through June, the third drop in four quarters. The decline contrasts with 1.5 per cent growth in South Korea’s gross domestic product.

Combined second-quarter profit at local lenders including Kookmin Bank, South Korea’s largest, plunged 34 per cent 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.

Raising the mortgage lending ceiling probably won’t lead to an ‘explosive’ increase in banks’ lending to households, Haekyu Chang, a Seoul-based analyst at Fitch Ratings Ltd, said in a phone interview before the government’s announcement. It also won’t erode the quality of loans, he said.

‘The household debt issue can only become a concern in the very long term if it rises rapidly,’ Mr Chang said. ‘I don’t see that happening in the next one or two years.’ – Bloomberg

Source: Business Times, 31 Aug 2010

Decline comes as economy chalks up quarterly growth of 1.5%

(SEOUL) South Korea’s construction industry had its biggest annual contraction since at least 2008 in the second quarter, deepening a dilemma for policymakers faced at the same time with a sustained expansion in the broader economy.

Construction shrank 0.8 per cent over the three months through June compared with the prior quarter, the third drop in four quarters, and 0.5 per cent from a year ago, according to gross domestic product (GDP) data released yesterday by the Bank of Korea.

The decline contrasts with a quarterly growth rate for GDP of 1.5 per cent, which bolstered the case for the central bank to continue raising interest rates.

Concern about economy-wide inflation pressures outweighed risks from falling house prices when the bank increased its benchmark this month to 2.25 per cent from a record low 2 per cent.

‘Policymakers can’t stop raising interest rates just because the construction sector is in trouble, which was already doing badly when rates were at a record low,’ said Lee Sung Kwon, an economist at Shinhan Investment Corp in Seoul.

‘The government is seeking measures to support the industry, but it’ll be difficult to find a good solution unless homebuyers’ sentiment improves.’

The 36-member Korea Construction Index of stocks fell 0.4 per cent yesterday after the data were released, compared with a 0.6 per cent gain in the benchmark Kospi index. The building gauge has tumbled 18 per cent this year, while the Kospi has risen 5.1 per cent.

The government is contemplating steps to boost the property market after home prices in Seoul fell for three straight months through June, according to data from Kookmin Bank, the nation’s largest lender.

The administration of South Korean President Lee Myung-bak, who suffered an unexpected reversal at local elections on June 2, last week delayed announcing the property policy after officials failed to reach agreement on the proposals.

Land Minister Chung Jong Hwan said on July 21 that he doesn’t plan to loosen mortgage-lending controls for now, while Finance Minister Yoon Jeung Hyun said that the nation’s property prices are unlikely to fall sharply.

‘The property market has emerged as a major political concern,’ Park Sang Hyun, chief economist at HI Investment & Securities Co in Seoul, said last week.

South Korea tightened restrictions on mortgage lending last year to slow loan growth. Banks can extend as much as 50 per cent of a borrower’s annual income for purchases of homes in Seoul and 60 per cent for areas outside the capital.

The quarterly gain in GDP reported yesterday exceeded the 1.3 per cent median forecast in a Bloomberg News survey of seven economists. From a year earlier, GDP rose 7.2 per cent.

The growth figures raise the risk of the Bank of Korea boosting rates twice more by year-end, Barclays Capital analysts said yesterday as they increased their 2010 GDP growth projections to 6.1 per cent from 5.7 per cent. — Bloomberg

Source: Business Times, 27 Jul 2010

Authorities fail to agree on whether to ease curbs on mortgage lending

(SEOUL) South Korea yesterday put on hold a plan to announce measures aimed at boosting the property market, as policymakers were unable to reach an agreement on whether to ease mortgage lending restrictions.

The cautious attitude comes in the face of widespread concern that eased mortgage lending rules could spark a property price bubble and sharply lift already heavy household debt.

The Land Ministry said on Monday that it would announce today ways to boost home transactions, which have been sluggish as household income has been slow to recover despite a fast pick-up in economic growth.

‘We agreed to reach a conclusion on the measures after continuing discussions,’ Land, Transport and Maritime Affairs Minister Chung Jong-hwan told reporters after a meeting with other economic and financial policymakers.

He did not say when the measures would be announced.

Housing prices have risen from a year earlier but sale transactions have been shrinking, partly because of strict restrictions on mortgage borrowing imposed in recent years.

The presidential office said in a statement that ministers would continue discussions without binding themselves to a specific date for an announcement, indicating President Lee Myung-bak wanted the government to give the matter more thorough consideration.

The government is seeking a way to prevent the property market from cooling and denting the still- nascent recovery in consumer spending without sparking a housing price bubble and mortgage borrowing frenzy.

Citing government sources, state-run KBS television reported that the ministry wanted regulations on mortgage lending eased while the Finance Ministry and the Financial Services Commission were opposed.

Analysts said the delayed announcement would not seriously hurt the government’s credibility because there was a broad consensus among South Koreans that the government could not be overly careful in handling property policy.

‘It’s true that the government appears very careful in deciding on key measures, but it is not fair to link the delay directly to the government’s credibility,’ said Kwon Soon-woo, chief economist at Samsung Economic Research Institute.

South Korean households have debt totalling two-thirds of the country’s annual gross domestic product and the financial authorities are concerned because the debt has continued to expand faster than income growth. — Reuters

Source: Business Times, 22 Jul 2010

(SEOUL) South Korea said yesterday it will unveil measures aimed at boosting housing transactions on Thursday, sending shares of home builders higher.

The Ministry of Land, Transport and Maritime Affairs confirmed measures aimed at ‘normalising housing transactions’ would be discussed at a weekly emergency economic meeting to be chaired by the president on Thursday.

House prices have been rising over a year but sales transactions have been shrinking partly because of strict restrictions on mortgage borrowings imposed in recent years.

Ko Heung-kil, the chief of the ruling Grand National Party’s policy committee, told a meeting of senior party members earlier in the day that the government was preparing to announce measures aimed at boosting home transactions.

Mr Ko’s comments had sent the construction industry sub-index 2.9 per cent higher, even as the the broader index fell 0.4 per cent.

It was not clear if the measures would be aimed at helping boosting sales transactions of existing homes or new homes or both.

Apartment prices across South Korea set their first weekly fall in 16 months last week, data from the country’s largest lender, Kookmin Bank, showed on Friday.

Home prices grew 3 per cent in June from a year earlier, above the annual consumer inflation rate of 2.6 per cent for the month but slowing for a second consecutive month, Kookmin Bank data showed.

But an index from the bank that measures activity in home transactions fell last month to an 18-month low of 0.2 from 0.3 in May and from as high as 1.3 set in September 2009.

South Korea has on several occasions imposed strict limits on the maximum amount of mortgage loans that home owners can borrow on the basis of the market prices of the homes or borrowers’ annual income.

Local media and some politicians have demanded the restrictions be eased, but financial authorities have repeatedly said they would not loosen them drastically, mainly out of fear that already high household borrowing could flare up again. — Reuters

Source: Business Times, 20 Jul 2010

Korean investors building up property holdings in Asia, including Singapore

SOUTH Korean investors are keen on a larger slice of their Asian neighbours’ real estate pie – and some of them have their eye on Singapore.

Korean investment in Asian real estate may currently be worth more than US$10 billion, estimates Derek Wong, director of real estate investment & finance at Woori, Korea’s largest financial group. This sum, he believes, has the potential to increase by 52-100 per cent over the next 3-5 years.

Forced to take rain checks for over a decade by not one but two financial crises, Korean investors can finally seek overseas investment opportunities under clear skies. And they are doing so with a vengeance.

‘With Korean National Pension Service (NPS) acquiring more than US$3 billion worth of overseas real estate in the last six months, we expect other Korean pension, insurance and investment funds to follow suit,’ says Mr Wong.

NPS plans to have 6.6 per cent of assets in overseas equities in 2011, compared with 5.1 per cent targeted for this year, and is considering establishing a fund that will focus on investments in Asia.

Besides the pension funds, Mr Wong names conglomerates with a lot of liquidity – such as Samsung, Daewoo and Hyundai – as well as insurance companies such as Samsung Insurance and Woori Aviva as other investors with pent-up interest and strong balance sheets.

‘Since the 1997 Asian financial crisis, when Korean conglomerates were badly hit, Korean corporates had to strengthen their corporate balance sheets and were discouraged by the Korean government from making any significant overseas investments,’ says Mr Wong.

As an indicator of how pent-up Korean interest can surge, he highlights how Korean investment in overseas real estate leapt from less than US$10 million in 2003 to US$750 million in 2006. It was about US$1.2 billion in 2008 before the global crisis halted all overseas investments again.

While China and Hong Kong are natural favourites for Korean investment, Singapore wins points for the transparency of its market – as well as for its political stability, strong legal system and clear tax structure without capital gains tax.

Korea was already making its presence felt in Singapore’s residential market before the crisis set in; in 2007, Koreans accounted for 7 per cent of all foreign buyers and were ranked joint fifth among foreign buyers in Singapore.

Post-crisis, Korean investment is not a one-way street. The sharp depreciation of the Korean won during the crisis attracted an influx of overseas funds, especially from the United States.

Despite the strengthening of the won, the success of these early-bird investors has garnered Korean real estate a steady stream of attention. Woori is currently stitching together about US$2-3 billion worth of deals in Seoul, as well as facilitating the investment of Malaysian conglomerate Berjaya in an integrated resort on Jeju Island.

Mr Wong estimates that a standing asset in Korea can fetch a yield of about 6 per cent per annum, compared to a much lower 4 per cent in Singapore.

Choice picks of Korean real estate include office buildings and retail malls, he adds. ‘These depend a lot on the economy of the country, and the Korean economy looks to be good for the next 10 years.’

The Korean government predicted last month that Korea’s economy would grow 5.8 per cent this year.

Of course, many investors remain leery of Korea due to the language barrier and the political tension between the North and the South, as well as a widespread perception of the Korean market as being insular and ‘closed off’.

‘It’s a misconception,’ says Mr Wong, who feels that the country is making an effort to reach out to the world, especially through its entertainment scene.

‘Now is a good time to break the Korean mystique,’ he concludes. ‘A lot of people say we’re going through ‘the golden decade of Korea’.’

Korean overseas investment leapt from less than US$10m in 2003 to US$1.2 billion in 2008.

Source: Business Times, 6 Jul 2010

(SEOUL) South Koreans’ purchases of overseas property declined during the first quarter from three months earlier as investor sentiment remained sluggish despite steadily improving global economic conditions, data showed yesterday.

According to the data provided by the Ministry of Strategy and Finance, South Koreans purchased a total of US$58.7 million worth of land, houses and other property in foreign countries in the January-March period – sharply down from the US$85.1 million tallied during the fourth quarter of 2009.

The sharp quarter-on-quarter reduction is attributable to sluggish sentiment among investors, who remain reluctant to venture out to purchase expensive assets amid lingering global economic uncertainties, reported Yonhap news agency.

Bolstered by the government’s move to ease related regulations, South Koreans’ investments in overseas property had been growing sharply until the world was hit by the financial crisis in late 2008.

In 2003, local citizens bought a total of US$3.6 million worth of overseas property, but the amount jumped to US$743.5 million and US$1.17 billion in 2006 and 2007, respectively, according to the data.

The global financial crisis and resulting economic downturn worldwide, however, dampened market sentiment. Property transactions halved to US$514 million in 2008 and further declined to US$223 million last year, the data showed. — Bernama

Source: Business Times, 6 May 2010

16.5t won blueprint scraps 2005 plan to relocate parts of govt to Sejong

South Korea yesterday announced a 16.5 trillion won (S$20.4 billion) blueprint to develop a new city as a science and education hub, scrapping controversial plans to relocate much of the government there.

The country’s biggest business group Samsung has signed a deal to move some operations to Sejong City, along with the Hanwha, Woongjin and Lotte groups, said Prime Minister Chung Un-Chan.

Yesterday’s announcement officially axes a plan unveiled in 2005 by then-President Roh Moo-Hyun to relocate nine ministries and four subsidiary agencies to the proposed city 150 kilometres south of Seoul.

Mr Roh’s liberal government had said the aim was to promote balanced regional development in a country where almost half the population lives in Seoul or surrounding cities.

The plan was also attractive to the Chungcheong region, whose traditionally uncommitted voters have often swung elections.

But Mr Chung’s office said it ‘would have resulted in inefficiency and waste’ of national resources.

However, the current conservative government will face an uphill battle securing parliamentary approval to change the plan, against objections from the opposition and from a sizeable faction of the ruling Grand National Party.

‘The Sejong City plan . . . is a task of correcting past errors and paving the ground for a new future,’ the prime minister said. ‘If the promise of the past was politically driven it would be courageous for a leader to correct it, albeit belatedly.’

The government has decided to create an economic hub centred on education and science in Sejong with total investments of 16.5 trillion won (S$20.4 billion), including 4.5 trillion won from the private sector, Mr Chung said.

‘We expect Sejong will grow into a self-sufficient city with a population of 500,000 with 246,000 new jobs by 2020.’

The city is named after the revered 15th-century monarch who invented the country’s alphabet.

The government has since 2005 built roads and other basic infrastructure as a prelude to transforming the country town into a sprawling modern city.

The government will provide incentives such as cheaper land, tax cuts and subsidies to lure firms, college campuses, research institutes and hospitals there.

Some 1.9 million square metres of land will be open for foreign investors.

An international science and business belt will be centred on Sejong, the ministry of education, science and technology said, adding that this could create new growth opportunities and allow the new city to become self-sufficient.

‘We believe it will spur balanced development and enhance the competitiveness of our nation,’ the Korea Employers’ Federation said. Samsung promised to invest 2.05 trillion won in the city.

Source: Business Times, 12 Jan 2010

Apartment prices in the capital Seoul rose 23.7 per cent in the first nine months of the year, South Korean government data released for the first time yesterday showed, 10 times as fast as a private bank reported earlier.

The Ministry of Land, Transport and Maritime Affairs said in a statement that the wide difference did not mean that previous figures from Kookmin Bank, the country’s top mortgage lender, were incorrect but reflected a different calculating method.

It said that the government data was based on prices by actual buyers reported to the authorities whereas Kookmin’s figures were based on surveys of realtors.

Official data showed that apartment prices in the capital, where about one-fifth of South Korea’s population lives, fell 18.9 per cent during the July-December 2008 period whereas Kookmin data showed that prices dropped just 2.5 per cent.

Real estate prices in emerging economies are closely watched by investors because any sign of building asset price bubbles on the back of fast economic recovery could prompt policymakers to tighten monetary policy.

South Korea’s central bank warned in September that it would raise interest rates if real estate prices and mortgage lending growth accelerated, though it stepped back later after the government imposed lending controls.

The Bank of Korea has held its benchmark seven-day repurchase agreement rate steady at record-low 2.0 per cent for the past 10 months and is widely expected to begin raising it from early 2010 in line with the recovering economy.

Source: Business Times, 24 Dec 2009

(SEOUL) South Korean mortgage lending to households across the financial sector grew at a slower pace last month as a result of tight loan control efforts, Yonhap reported yesterday, easing pressure for an early rate hike.

The state-run news agency reported that data from the Financial Supervisory Service (FSS) showed non-bank financial firms increased their combined mortgage lending by 1.1 trillion won (S$1.3 billion) last month, less than the 1.3 trillion won gain in September. Banks’ mortgage lending growth slowed for a fourth consecutive month, with the loan increase easing to 2.1 trillion won in October from 2.4 trillion won in September and significantly from 3.8 trillion won seen in June, the FSS said. The nation’s financial authorities have stepped up their loan control measures since early July to temper a growing property market bubble, a concern that the central bank clearly warned might force it to raise rates. — Reuters

Source: Business Times, 5 Nov 2009

(SEOUL) Apartment prices across South Korea rose for the 17th straight week, the longest gaining streak since July 2008, data from the country’s top lender showed yesterday.

Apartment prices rose by 0.1 per cent last week from the previous week, extending a rising trend that started in early June, according to data from Kookmin Bank. The data came amid growing expectations for a rate increase this year after the central bank warned several times that it would lift interest rates to calm the property market.

The Bank of Korea is scheduled to review rates on Friday. — Reuters

Source: Business Times, 6 Oct 2009