The restructuring of the Korea Land and Housing Corporation (LH) into separate entities for development and housing welfare has raised critical questions about how to divide its over 173 trillion won in debt. With the separation of profit-generating development projects from loss-incurring rental operations, experts warn that the financial structures of the two new organizations could diverge significantly, necessitating careful planning for both asset and liability distribution as well as future repayment sources.
According to the Ministry of Land, Infrastructure and Transport, First Vice Minister Kim I-tak held a kickoff meeting for the LH restructuring on September 11, discussing specific directions and subsequent procedures with LH President Lee Seong-hoon and others.
Earlier this month, the government proposed splitting LH into two entities: a provisional Housing and Urban Development Corporation and a Housing and Urban Asset Corporation. The development corporation will handle land development and housing construction, while the asset corporation will focus on housing welfare and asset management. A portion of the development profits generated by the development corporation is expected to be contributed to the asset corporation through a separate account in the housing and urban fund. However, the specific financial structure regarding how much of LH's existing assets and liabilities will be allocated to each entity, as well as the criteria for distributing common borrowings and corporate bonds, has yet to be determined.
How to Split 173 Trillion Won in Debt: Different Repayment Methods for Each Debt
As of the end of 2025, LH's total liabilities are projected to reach 173.66 trillion won, with borrowings and corporate bonds accounting for 109.45 trillion won, or 63.0% of the total. Rental deposits amount to 27.36 trillion won, while other liabilities, including advance payments and provisions, total 36.85 trillion won.
The challenge lies in the fact that simply dividing these liabilities based on asset size or business proportion is not feasible. Borrowings used for land development and sales can be recouped through the sale of land or housing, but funds invested in public rental housing must be recovered through long-term, low rental income. Rental deposits also represent a liability that must be returned to tenants.
Ongoing construction of rental housing adds another layer of complexity. While the development corporation will be responsible for housing construction, the asset corporation will own and operate the completed rental properties, necessitating a decision on which entity will bear the borrowings incurred during construction. Additionally, a separate standard is needed for handling corporate bonds and common borrowings that are not directly linked to specific projects.
2.5 Trillion Won Profit from Sales, but 2.7 Trillion Won Loss from Rentals
Recent performance data by business segment highlights these issues. According to LH's segment reports, the total gross profit from the sales division last year was 25.277 trillion won. In contrast, the rental division recorded a gross loss of 27.383 trillion won. Although other business segments generated a profit of 2.7 trillion won, the overall gross profit was only 594 billion won. After accounting for selling and administrative expenses of 700.7 billion won, the operating loss reached 641.3 billion won, with a net loss of 91.8 billion won.
The situation was markedly different in 2021, when the sales division generated a gross profit of 80.62 trillion won, offsetting a rental division loss of 17.934 trillion won, resulting in a total gross profit of 63.067 trillion won. Since then, profits from the sales division have declined, while rental losses have expanded annually: 19.362 trillion won in 2022, 22.238 trillion won in 2023, 24.806 trillion won in 2024, and 27.383 trillion won last year.
Consequently, securing funding for the asset corporation, which will manage housing welfare and rental assets, has emerged as a key challenge following the split. Currently, profits from sales and development projects offset rental losses within a single entity, but once the two organizations are separated, a distinct mechanism for transferring funds will be necessary.
The government plans to have a portion of the development profits generated by the development corporation contributed to the asset corporation through a fund. However, the specific contribution ratio, timing, and who will bear any shortfalls in years when development profits are insufficient remain to be clarified.
The Ministry of Land, Infrastructure and Transport has stated that it is reviewing detailed financial structures as part of the restructuring plan. A ministry official noted, "We are reorganizing to resolve conflicts of interest and inefficiencies arising from the mixing of different types of work, and specific plans are currently under review."
LH has also indicated that no finalized debt distribution plan exists yet. An LH official stated, "The Ministry of Land is expected to announce a reform plan that includes specific separation measures soon," indicating that they are awaiting the government's reform proposal.
* This article has been translated by AI.
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