The risk of insolvency in the real estate project financing (PF) market is rising, prompting a second round of selective measures. Following previous restructuring efforts to reduce the scale of PF, the focus will now shift to providing funding for viable projects while closing down those with low recovery potential.
According to data submitted by the Financial Supervisory Service to Park Seong-hoon, a member of the National Assembly's Political Affairs Committee, the overall delinquency rate for PF loans in the financial sector was recorded at 4.65% at the end of the first quarter of this year. This marks a 0.77 percentage point increase from the end of last year (3.88%) and is the highest level since the end of Q3 2016 (4.95%).
By sector, delinquency rates remain at historically high levels. The delinquency rate for PF loans at securities firms surged from 28.38% at the end of last year to 30.43% at the end of Q1 this year, a jump of 2.05 percentage points, reaching its highest point since the end of 2016 (32.6%). Notably, the delinquency rate for bridge loans at securities firms reached 46.93%, while the delinquency rate for main PF loans stood at 23.18%.
Bank PF delinquency rates also increased from 0.82% at the end of last year to 1.32% at the end of Q1, the highest since the end of 2017 (1.36%). Insurance companies saw their delinquency rates rise from 1.68% to 2.27% during the same period, the highest level in 11 years since the end of 2014 (2.39%).
In this context, the comprehensive real estate finance measures announced by financial authorities on the 13th are expected to accelerate the selective measures in the PF market. The government plans to expand public guarantees for viable projects while establishing a 3 trillion won fund to support the normalization of distressed projects through KAMCO. Additionally, the syndicate loans from banks and insurance companies will be increased from 1 trillion won to 5 trillion won. The financial sector's own normalization fund will also be raised from 7.3 trillion won to 10 trillion won.
Particularly, the Financial Services Commission has decided to implement immediate measures, including the establishment of the KAMCO fund starting this month, which is expected to lead to the resumption of new PF loans or refinancing of existing loans for projects deemed viable. While the financial sector has been cautious in its approach to PF loans, it is anticipated that funding decisions will now be more closely scrutinized based on guarantees, land acquisition, permits, and sales potential.
However, it is expected to take time for the benefits to reach local projects or early-stage bridge loans. Financial institutions may be reluctant to provide funding to projects with uncertain viability, even if they are included in the policy support measures. Ultimately, this policy is likely to lead to a 'selective normalization' that reconnects financing to viable projects while increasing pressure to close down marginal ones.
A financial sector official stated, "Even with expanded public guarantees, there is little incentive for financial companies to actively engage with projects that have not secured land or completed permits, or that have low sales potential. Financial institutions may apply stricter criteria to assess the risks of early-stage projects."
* This article has been translated by AI.
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