Financial Services Commission to Report to the President on the 30th
[Asia Economy Reporter Yu Je-hoon] The Financial Services Commission (FSC) is set to distinguish between sound and problematic real estate project financing (PF) sites, which are considered the biggest financial market risk this year. The plan is to continue projects by supplying liquidity to sound sites, while encouraging autonomous restructuring and project normalization led by creditors for troubled or potentially troubled sites. Additionally, to facilitate a soft landing for the overall real estate market, the FSC will accelerate the easing of various loan regulations that were tightened during the real estate price surge. Housing mortgage loans for multi-homeowners and rental/sales businesses will resume, and regulations related to housing loans for returning tenant deposits will be abolished to prevent reverse jeonse difficulties.
On the 30th, FSC Chairman Kim Ju-hyun reported the 2023 major work plan titled "Unwavering Financial Stability, Financial Industry Opening Tomorrow" to President Yoon Seok-yeol at the Blue House State Guest House in Jongno-gu, Seoul. Chairman Kim said, "We will make every effort to ensure a soft landing in the real estate market in preparation for the real estate PF risk, which is considered the biggest risk factor this year."
The Biggest Risk This Year: Real Estate PF... Distinguishing Sound and Problematic Sites
Stabilizing real estate PF, identified as the biggest risk in the financial market this year, is a key task for financial authorities. The FSC plans to support normal PF projects with proper funding while encouraging creditors to autonomously restructure or normalize projects that have become or are likely to become distressed.
First, to ensure normal funding for sound PF projects, the authorities will support project guarantees when converting from bridge loans to main PF loans. The guarantee scale is about 15 trillion KRW. Additionally, when sound projects convert short-term refinancing project financing-asset-backed commercial paper (PF-ABCP) into long-term loans, guarantees will be provided through the Korea Housing Finance Corporation (HF) and the Korea Housing & Urban Guarantee Corporation (HUG). The guarantee scale for this is about 3 trillion KRW.
For PF projects that have become distressed or are at risk, creditors will be encouraged to autonomously restructure the projects through amendments to creditor agreements. Furthermore, the Korea Asset Management Corporation (KAMCO) and the private sector will jointly establish a 'Distressed PF Asset Purchase and Restructuring Fund' to support creditors' restructuring efforts. This fund will be promoted at a scale of 1 trillion KRW using KAMCO's own resources and private capital.
Liquidity support for construction companies facing financing difficulties will also be expanded. The FSC plans to support refinancing of construction company guaranteed PF-ABCP and corporate bond purchases using existing market stabilization programs. Additionally, if necessary, the supply of policy funds such as guarantees and loans for non-residential PF of mid-sized and small construction companies will be expanded.
Accelerating Loan Regulation Easing for a Soft Landing in Real Estate
To facilitate a soft landing in the real estate market, easing of loan regulations tightened during the housing price surge will also be promoted. The FSC plans to allow housing mortgage loans for multi-homeowners and rental/sales businesses by the end of March. Accordingly, the loan-to-value ratio (LTV) for multi-homeowners will be expanded up to 30% in regulated areas, and for rental/sales businesses, up to 30% in regulated areas and 60% in non-regulated areas.
Moreover, the FSC will consider additional easing measures for loan regulations, taking into account the overall household debt situation and housing market trends. For example, expanding the current 50% LTV for single-homeowners or providing preferential LTV for registered rental businesses are possible options.
Measures to ease regulations to prevent reverse jeonse crises have also been prepared. The FSC will begin easing regulations by applying the same LTV as for home purchases to housing loans for living stabilization funds and tenant deposit returns. Specifically, the 200 million KRW loan limit on housing loans for tenant deposit returns on apartments exceeding 1.5 billion KRW in speculative and overheated speculative areas will be abolished. Additionally, the move-in obligation for loans on homes exceeding 900 million KRW in regulated areas and the disposal obligation for other owned homes when handling collateral loans for two-homeowners in regulated areas will be removed. The ban on housing loans in regulated areas for households owning three or more homes will also be lifted.
However, the FSC remains cautious regarding the core regulation of the debt service ratio (DSR). In a pre-briefing on the 27th, Chairman Kim said, "The easing of housing-related regulations is intended to allow people who can comfortably afford to buy a home with some borrowing to do so," but added, "Since external observers view our household debt problem as very threatening, policies that increase debt are not appropriate in my opinion."
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