Expansion from 85% to 90% of purchase price based on total project cost
Applied until June next year... "Project activation and trust enhancement"
#. Mr. A, who runs a small to medium-sized construction company, has decided to relaunch the new purchase rental housing project. The biggest factor influencing this decision was the increase in the actual guarantee limit of this project, in which the Korea Land and Housing Corporation (LH) and others purchase villas built by Mr. A and supply them as rental housing, to 81% of the total project cost. Previously, the Housing and Urban Guarantee Corporation (HUG), which handles the guarantees, considered 85% of the purchase contract amount as the total project cost and guaranteed 90% of that. Although the government pledged a '90% guarantee of the total project cost,' in reality, only about 76.5% was guaranteed.
Recently, the government relaxed the total project cost criteria for the new purchase rental housing urban housing special guarantee product as described above. This immediate action followed a report by this newspaper (October 22, "Distant 110,000 New Purchase Rental Units... 90% Loan Guarantee? Barely 75%") highlighting the difficulties in project promotion due to the small actual guarantee scale. It is evaluated that the government's goal of supplying 110,000 new purchase rental housing units by next year to alleviate housing supply instability and curb housing prices has become more achievable.
According to the Housing and Urban Guarantee Corporation (HUG) on the 20th, the total project cost criterion that determines the limit of the urban housing special guarantee was expanded from 85% to 90% of the purchase price for new applications starting from the 15th of this month. This criterion will be temporarily applied to projects that have signed new purchase contracts with purchasing institutions such as LH and Gyeonggi Housing and Urban Corporation (GH) until the end of June next year. HUG announced that it revised the related enforcement rules earlier this month. With this relaxation of the total project cost criterion, project operators will be guaranteed 81% of the purchase price.
This product is a guarantee product that pays the principal and interest repayment of loans borrowed from financial institutions by project operators who have signed new purchase contracts to raise funds. The guarantee target is newly contracted purchase rental housing with 30 or more households, and the limit is within 90% of the total project cost (80% for areas outside the metropolitan area).
However, the limit actually guaranteed by HUG, which exercises discretion over the total project cost, was only 76.5% of the total project cost, causing dissatisfaction among project operators. Assuming the purchase contract amount is 100 million KRW, HUG considered 85% of this amount as the total project cost and guaranteed 90% of 85 million KRW. As a result, the project operator could only receive a guarantee of 76.5 million KRW. A representative of a small to medium-sized construction company pointed out, "This greatly undermines the credibility of the government's policy to guarantee 90% of the total project cost."
The guarantee scale affects the loan amount that project operators can receive at low interest rates, so the total project cost criterion is an important factor in assessing project feasibility. Regarding this, HUG explained that when purchasing institutions such as LH buy private new houses, they do not only pay the construction cost but also guarantee a certain profit, and the guarantee has been provided excluding the portion corresponding to this.
However, the government has decided to temporarily increase the guarantee scale. A HUG official said, "The government is driving the supply of purchase rental housing and has improved factors that hinder project activation," adding, "We will monitor the progress of projects and the number of guarantees over time."
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