Gov’t to navigate soft landing of real estate PF market
Financial authorities will strengthen the feasibility evaluation criteria for real estate project financing (PF) businesses, while encouraging unsalvageable ones to undergo restructuring, the nation’s top financial regulator announced, Monday.
They will also facilitate the formation of syndicated loans by the banking and insurance industries to promote a soft landing of the country’s debt-ridden real estate PF sector.
According to the Financial Services Commission (FSC), the government plans to hold public and private auctions of real estate PF businesses that are categorized in the lowest level of the new feasibility evaluation classification.
The move is apparently aimed at expediting the essential restructuring of the country’s real estate PF market, which is scaled at approximately 230 trillion won ($168 billion).
Real estate PF businesses that do not meet the new feasibility assessment criteria will face an increased likelihood of being auctioned off, especially with the looming risk of insolvency due to stricter requirements on maturity extensions by financial institutions.
Financial companies will be required to independently conduct feasibility assessments of real estate PF businesses based on enhanced standards beginning in June. Subsequently, the Financial Supervisory Service (FSS) will inspect those assessments.
“It is estimated that the aggregate amount of troubled businesses among the country’s 230 trillion-won real estate PF loans could reach up to 23 trillion won. In other words, the proportion of healthy PF businesses is estimated to be 90 to 95 percent,” Kwon Daeyoung, a secretary-general at the FSC, said during a press briefing at the Government Complex Seoul, Monday.
“At present, PF businesses expected to be put up for auction are expected to account for around 2 to 3 percent of the total,” he added.
Meanwhile, financial authorities plan to inject 34 trillion won into construction companies that are deemed to have the potential for recovery.
Moreover, banks and insurers will collaborate to create up to 5 trillion won in syndicated loans for the restructuring of the real estate PF sector. This initiative aims to provide necessary liquidity to PF businesses with a healthy level of potential profitability.
An additional 1 trillion won fund from the Korea Asset Management Corp. (KAMCO) will be allocated to grant priority purchase rights, aiming to expedite the sale of real estate PF bonds and prevent prolonged delays in issuance caused by discrepancies between buyers and sellers in desired sale prices.
“To ensure the smooth transition of the real estate PF market toward a soft landing, it is crucial to enhance predictability for market participants by transparently outlining specific policy directions and measures.
Additionally, it is essential for market participants to actively engage in self-rescue efforts, such as committing to loss-sharing arrangements that align with the associated risks,” Kwon said, vowing to work closely with related ministries and institutions.
The financial regulator said the real estate PF feasibility assessment criteria will be implemented from June after sufficient consultations with the market. It also pledged to maintain close communication with the market to continuously identify necessary measures in preventing uncertainties.