HF seminar highlights the need to improve the quality of housing finance and

expand the role of relevant authorities

- HF holds a seminar on “Paradigm Shift and Plans for Stabilizing the Housing Finance Market” -

On October 23rd, the Korea Housing Finance Corporation (HF, CEO Seo Jong-dae) held a seminar titled, “Paradigm Shift and Plans for Stabilizing the Housing Finance Market,” at the Korea Chamber of Commerce and Industry (KCCI) in Namdaemun-ro, Jung-gu, Seoul.

During the seminar, it was claimed that a gradual shift to monthly rent-based housing rentals may reduce the supply of Jeonse(returnable lump-sum deposit) housing rentals while boosting the demand for long-term mortgage instruments. Also identified at the seminar was the need to develop hybrid financial instruments for facilitating the migration from chonsei housing rentals to housing purchases and to deposit-based monthly rentals and to increase the share of financing via mortgage-backed securities (MBS) and other long-term bonds in an effort to promote fixed-rate mortgage loans.

□ The growing number of single- or two-person households and the inflow of expatriate/immigrant households will help generate new housing demand on a continued basis

- Korea’s housing prices are not relatively high, and the growing burden of monthly rent payment may give rise to a greater demand for mortgage loans

Professor Lee Chang-mu of Hanyang University gave a presentation titled, “The outlook of housing demand and supply amid the paradigm change in housing finance,” where he pointed out: “France, Italy, and Denmark are prime examples of places where housing prices went up despite a declining share of the economically active population. Although population aging is still underway, a growing number of single- or two-person households and the inflow of expatriate/immigrant households will help generate new housing demand on a continued basis.” Lee added, “A global comparison of price income ratio (PIR) against annual income suggests that housing prices in the Greater Seoul area are not relatively high, as its PIR (5.2) is lower than Sidney (8.3), London (7.8), New York (6.2) and Toronto (5.9). We need to take into account various types of housing demand arising from higher levels of household income.” He also argued that a gradual shift to monthly rent-based housing rentals may reduce the supply of chonsei rentals while boosting the demand for long-term mortgage instruments.

□ The housing finance scheme for low-income citizens contributes to stabilizing housing prices and lessening the burden of interest payments for borrowers

- A balanced system of support should be built for housing purchases, chonsei housing rentals and monthly rentals

Kim Deok-rye, a researcher at HF’s Housing Finance Research Institute, gave a presentation on the topic of “Plans to support housing finance for low-income citizens in the face of changes in the housing finance environment.” She explained, “In the past six years following the global financial crisis, the formal financial market centering on mortgage loans has grown exponentially by 9.8 times and the informal financial market—driven by deposit and pre-sale loans—by 2.9 times. As a result, the housing finance market is currently sized at around 950 trillion won (800 trillion won in loans and 150 trillion won in housing guarantees).” Kim also suggested, “By providing housing finance vehicles for low-income citizens, the National Housing Fund and HF have contributed to stabilizing housing prices, lessening the burden of interest payments for borrowers, and enhancing the mortgage loan scheme.” She went on to point out: “Now, it is the right time for us to redefine the role of the housing finance authorities by driving changes favorable for borrowers (e.g. improving the quality of housing supply) and promoting the private housing rental market. We should provide a balanced system of support for housing purchases, chonsei housing rentals and monthly rentals so we can develop hybrid financial instruments to facilitate the migration from deposit-based rentals to housing purchases and to deposit-based monthly housing rentals.”

□ The share of financing via MBS and other long-term bonds should be expanded to promote fixed-rate mortgage loans

The final presenter, Professor Cho Man of the Korea Development Institute (KDI) School of Public Policy and Management, addressed the theme of “Plans to enhance the negotiability of mortgage-backed securities (MBS) and promote investment.” He claimed: “Korea’s ratio of mortgage loans against household debts stands at 48.7%, which is lower than many major countries worldwide such as the United States (76.6%), Japan (64.8%), Canada (63.6%), and Australia (82.0%). In order to increase the share of fixed-rate mortgage loans, however, we need to finance more from MBS and other long-term bonds.” Cho pointed out, “To take our housing finance system to the next level, we should reduce the share of real estate in household assets (over 90% in Korea, compared to 40% in the United States and 60% in Japan) and promote instruments for indirect investment in real estate such as real estate investment trusts (REIT) and MBS funds.” He also suggested, “Given the growing demand for long-term bonds from insurers and pension funds, we should enhance the negotiability of such instruments by, for example, simplifying the structure for MBS issuance.”

□ With respect to the seminar, one HF official explained, “The wide variety of perspectives and ideas shared during the seminar will be fully considered in designing new housing finance instruments and further improving the relevant securitization scheme. On this basis, we will strive to enhance the housing stability of low-income families and advance the capital market.”