South Korea’s Anti-Debt Steps Not To Weigh on Builders

South Korea's most recent measures against the increasing household debt are not going to impact large private builders because they focused on controlling the supply of new apartments through a state housing developer.

On Thursday, Seoul announced a package of measures for the development of fresh residential areas and scale down the supply of new apartments by state-owned Korea Land and Housing Corp. (LH) in a bid that will tackle snowballing household debt.

"The anti-household debt measures center on restricting LH's development of residential areas. It will not affect much large construction firms as they are focused on rebuilding and redevelopment," said Park Hyeong-ryeol, a researcher at the brokerage house.

"The measures are unlikely to weigh heavily on large construction companies down the road," said by Meritz Securities Co. in a message given to clients.

Moreover, Kim Se-ryeong, an analyst named at KB Investment & Securities Co. mirrored the view, saying that the recent measures have a limited impact of the construction sector.

"Following the announcement of the measures, shares of major builders finished sharply higher. The market has already factored in related risks as banks have been tightening mortgage-lending rules since the start of the year amid supply restrictions," Kim said.

According to analysts, large construction companies that have ample liquidity and own residential sites will lead the housing market due to stricter restrictions on LH and new home-backed loans

The Bank of Korea said that overall household debt increased by 11 percent on-year to 1,257 trillion won (US$1.13 trillion) as of end-June despite of stricter loan screening.

Furthermore, surging household debt has been an irritation for policymakers as it is seen as a "time bomb" for South Korea that has been losing steam amid falling exports and weak domestic demand.