Authorities: "PF Measures to Be Implemented Within Tolerable Limits of Market, Financial Firms, and Construction Companies"

Experts Say "Construction Market Recovery Measures Must Also Be Implemented"

The financial authorities recently announced measures for the smooth landing of real estate project financing (PF) and stated that they will proceed within a range that the financial market, financial companies, and construction companies can bear.

On the 20th, the Financial Services Commission held a meeting of real estate PF market experts at the Government Complex Seoul in Jongno-gu, Seoul, chaired by Secretary-General Kwon Dae-young. The meeting was attended by representatives from the Financial Services Commission, the Financial Supervisory Service, vice presidents in charge of IR from the five major financial holding companies, credit rating agencies, analysts, and research institutions.

At the meeting, participants evaluated that even after the announcement of the PF smooth landing measures, the bond market and others showed stable signs without any signs of instability. Given that the market’s resilience has somewhat recovered, they expressed the opinion that it is timely to supplement and expand the previous measures to ensure the smooth landing of real estate PF.

They also noted that market participants are already sufficiently aware of the risks related to PF, and it is expected that the uncertainties inherent in the PF market will be largely resolved through these measures, which will help stabilize the overall market.

In particular, they anticipated that in the long term, separating normal projects from those subject to restructuring or liquidation will reduce concerns about decreases in permits and construction starts in the real estate market and positively impact future real estate supply.

However, experts emphasized the need to pay attention to the speed and scope when promoting PF normalization in the future. They pointed out that while the process should neither be too slow nor defer defaults, if the restructuring occurs too extensively beyond what the market can bear, it could negatively affect market sentiment.

There are also some concerns that the new measures could increase additional losses in the secondary financial sector, but experts expect the possibility of widespread defaults spreading throughout the secondary financial sector to be low, given that their loss absorption capacity has improved compared to the past.

However, experts agreed that loss recognition is inevitable in some projects involving the secondary financial sector due to the restructuring and liquidation of real estate PF under these measures, and thus monitoring companies with a high proportion of high-risk real estate PF is necessary.

It was also suggested that for the real estate PF smooth landing measures to be more effective, measures to strengthen construction investment and resolve unsold inventory, among others, should be implemented concurrently to aid the recovery of the construction industry.

The financial authorities emphasized, “To successfully carry out the smooth landing of real estate PF, we will clearly and transparently provide the market with specific policy directions and means to increase predictability, and proceed within a range that the financial market, financial companies, and construction companies can bear.” They added, “We will provide timely analysis and evaluation of the real estate PF market situation and risks to financial experts so that market participants can make calm and objective assessments.”

Meanwhile, on the 23rd, the authorities plan to hold the ‘1st Real Estate PF Smooth Landing Measures Review Meeting’ with related agencies such as the Ministry of Economy and Finance and the Ministry of Land, Infrastructure and Transport to fully gather opinions from the financial and construction industries regarding the real estate PF smooth landing measures and to review the implementation plans and status of these measures.