The government is reviewing plans to expand public guarantees for real estate project financing (PF) and ease financial regulations to increase housing supply. President Lee Jae-myung has called for 'bold housing supply' measures, prompting financial authorities to explore options to facilitate financing for suppliers.
According to financial authorities on August 9, the Financial Services Commission is examining ways to enhance supplier financing based on requests from the construction industry and on-site feedback.
The most discussed option is the expansion of public guarantees for PF. Given that banks and other financial institutions remain cautious about real estate PF, the aim is to increase the guarantee capacity of public institutions like the Korea Housing Finance Corporation to ensure that funds flow to viable projects.
There is also significant demand from the industry for easing regulations on the financial soundness of companies involved in PF. Financial authorities have been pushing to raise the capital adequacy ratio to 20% over the next four years to prevent excessive borrowing in PF projects. This would involve applying different risk weights, provisions, and loan limits based on the capital adequacy ratio.
However, the development industry has expressed concerns that financial institutions are preemptively implementing these measures, leading to a contraction in supplier financing. A representative from the real estate development sector stated, 'We should view private rental housing as a form of social infrastructure and consider easing related regulations or delaying their implementation.'
There is also a possibility of adjusting loan regulations for rental business operators. The government had restricted mortgage loans for housing purchase and rental businesses through the September 7 measures last year, but exceptions were made for loans secured by newly constructed homes. Financial authorities are considering broadening these exceptions to promote the supply of rental housing.
Efforts to resolve the financing difficulties for new apartments nearing occupancy and to ease regulations on relocation loans are also being reviewed in line with the push for increased supply. For relocation loans, there are discussions about changing the collateral criteria from existing homes to newly constructed ones to increase the loan amounts.
President Lee has discussed plans to expand housing supply in two recent meetings focused on real estate policy. During a meeting on August 7, he urged participants not to remain stuck in old mindsets but to make bold and transformative decisions.
In contrast, there is a cautious atmosphere regarding regulations on jeonse loans aimed at speculative demand. The Financial Services Commission is preparing to limit jeonse loans for non-resident homeowners who own one property for speculative purposes. President Lee has repeatedly pointed out that excessive jeonse loans could contribute to rising housing prices.
One proposed method for limiting jeonse loans is to reduce guarantees. Since jeonse loans from banks are based on guarantees from institutions like the Korea Housing and Urban Guarantee Corporation and the Korea Housing Finance Corporation, there may be discussions about lowering the guarantee ratio or restricting guarantees for certain groups.
The key issue is how to distinguish between genuine demand and speculative demand among non-resident homeowners. A senior official from the financial authorities stated, 'We aim to minimize inconvenience for genuine buyers while establishing criteria to identify speculative behavior.'
Exceptions recognized in the tax reform plan, such as job changes, relocations, long-term medical treatment, school transfers due to bullying, and caring for parents, may also be considered in the context of jeonse loan regulations.
Recent deterioration in public sentiment regarding real estate adds to the pressure. Concerns about the impact of the tax reform plan on the rental market and the tax burden on non-resident homeowners have been raised within the ruling party. Additionally, if jeonse loan regulations are applied too stringently, it could lead to instability in the rental market, prompting financial authorities to carefully consider their approach.
* This article has been translated by AI.
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