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The financial authorities, currently undergoing restructuring of the real estate project financing (PF) market, are continuing to pressure the financial sector by setting deadlines for restructuring procedures such as restructuring of distressed projects, liquidation, and auction sales. This comes from the judgment that the process of clearing distressed PF projects in the secondary financial sector is lagging behind expectations. However, some in the industry are voicing complaints that the financial authorities, who are intensifying pressure by conducting self-assessments, adequacy verifications, and on-site inspections for each project, are not taking market conditions into account.

According to the financial sector on the 25th, the Financial Supervisory Service recently issued a directive to all financial sectors to submit restructuring and liquidation plans by the 9th of next month for all real estate PF projects rated as 'Caution' or 'At Risk of Distress' in the final business feasibility evaluation. The directive specifies that the expected completion date for restructuring and liquidation must be set within six months from the plan submission date.

Initially, the financial authorities expected financial companies to complete the submission of restructuring and liquidation plans for each PF project within this month and anticipated full-scale liquidation and auction sales in August and September. However, it is interpreted as an internal judgment that the procedures are progressing more slowly than expected.

According to the directive, projects rated as 'Caution' must submit plans for business restructuring or voluntary sale, while those rated 'At Risk of Distress' must submit plans for write-offs or sales through auction. The directive also includes measures to significantly shorten the period required for auction sales. If the principal and interest on real estate PF loans are overdue by more than three months, auction sales must commence immediately. Previously, auction sales were initiated only when overdue by more than six months. Additionally, the period from failed auction to re-auction has been shortened from three months to one month.

At re-bidding, the auction price cannot be set at the previous failed bid price. The initial final auction price is set at the book value, but for re-auctions after failure, the price must be set lower than the previous final auction price. For projects subject to write-offs, it is required to document whether other possible recovery methods such as voluntary or compulsory auctions were attempted before proceeding with write-offs. Restructuring plans must be submitted in detail, including additional new funding, changes in project use, changes in construction companies, and restructuring of the funding structure.

Furthermore, face-to-face pressure through periodic inspections will be strengthened. The Financial Supervisory Service plans to conduct on-site inspections and management interviews starting from the 19th of next month, focusing on financial companies with deficiencies found in their restructuring and liquidation plans. The financial authorities expect auction sales volumes to increase significantly starting in September. In May, the financial authorities estimated that projects subject to restructuring (rated 'Caution' or 'At Risk of Distress') account for 5-10% of the total, and projects requiring auction sales are about 2-3%. Considering that the scale of real estate PF business feasibility evaluations was about 230 trillion won as of the end of last year, it is calculated that projects worth up to 7 trillion won will be auctioned, and restructuring volumes will reach 23 trillion won.

A senior official at the Financial Supervisory Service said, “If no deadline is set for submitting restructuring and liquidation plans, the process could be indefinitely prolonged,” adding, “It means to complete restructuring and liquidation as quickly as possible to avoid delays.” He explained the purpose of the directive by saying, “However, it is not mechanical. While the principle is within six months, if it is realistically difficult to meet the deadline, reasonable reasons can be provided.”

However, as the financial authorities continue strong pressure day after day, some in the financial sector are voicing complaints. They argue that many projects must be sold at bargain prices under time pressure, even as buying sentiment in the real estate market is recovering and house prices are showing some upward trends. They cite the fact that many projects are expected to be re-evaluated as 'normal' once the market recovers.

A financial sector official said, “If the clearance is to be completed within six months, it will inevitably have to be sold at a low price,” adding, “With interest rate cuts approaching and the real estate market gradually recovering, there is an expectation that projects currently classified as distressed will turn into normal projects if they wait.” He added, “I don’t understand why the financial authorities are rushing like this. Some parts could be left to the market.”

Another official said, “The key to activating auction sales ultimately lies with the buyers,” adding, “Auction sales volumes will continue to increase, but buyers are waiting for auction prices to fall further.”