Construction Industry and Real Estate Market Experts Meeting Held
Review and Diagnosis of Construction and Real Estate Market Conditions Since Impeachment Crisis
"Field Perception of Government Policies Still Low"
Construction Industry Proposes Loan Regulation Improvements to Stimulate Local Housing Markets
Lee Bok-hyun, Governor of the Financial Supervisory Service, met with the construction industry and stated that the on-site perception of government policies is low. He pledged to consistently promote measures for the smooth landing of real estate project financing (PF) to ensure that funds are smoothly supplied to normal business sites. The construction industry expressed concerns that funding supply could shrink further due to political instability and proposed improvements in loan regulations to stimulate housing demand in provincial areas, as well as tax relief measures to revive the local real estate market.
On the 20th, Governor Lee held a roundtable meeting with construction industry and real estate market experts at the Housing Construction Hall in Yeouido, Seoul. The meeting was organized to review and diagnose the construction and real estate market situation following the impeachment political crisis, and to collect and listen to on-site difficulties and suggestions for the government from the construction and real estate sectors. Attendees included Han Seung-gu, President of the Korea Construction Association; Jeong Won-ju, President of the Korea Housing Construction Association; Kim Jae-sik, Vice President of the Korea Housing Association; Kim Seung-bae, President of the Korea Real Estate Development Association; as well as representatives from various financial associations and market experts.
In his opening remarks, Governor Lee said, "The economic team, led by the Ministry of Economy and Finance, is taking active measures with special vigilance to prevent political risks from spilling over into finance and the real economy," adding, "Although the government has diversified liquidity support for the real estate development industry, the on-site perception of government policies remains low upon closer inspection." The government has supplied 35 trillion won in PF loan guarantees and introduced corporate restructuring REITs (CR REITs) for unsold houses in provincial areas to stabilize national housing.
He continued, "From the construction industry's perspective, the business environment is sluggish due to rising construction costs and declining orders, which worsen profitability," and added, "There is a need for the financial sector to join forces to facilitate smoother new PF transactions, and we will consistently promote measures for the smooth landing of real estate PF to ensure funds circulate to normal business sites." In fact, domestic construction orders recorded 191 trillion won in the first to third quarters of 2022 but stagnated at 140 trillion won in both the first to third quarters of 2023 and 2024. Operating profits in the construction industry worsened from 3.3 trillion won in Q3 2022 to 1.9 trillion won in Q3 2023 and 1.5 trillion won in 2024.
Lee Hyuk-jun, Director of NICE Credit Rating, who presented the main topic at the roundtable, noted that polarization between Seoul and provincial real estate markets continues in the second half of this year, and that deepening unsold inventory in provincial areas could pose risks and uncertainties to the overall economic system. He suggested that next year, the two-track policy by region to alleviate Seoul-province polarization should be expanded compared to this year.
Director Lee particularly emphasized, "Considering the economic environment where a return to ultra-low interest rates like in the past is unlikely due to the inauguration of the second Trump administration, the cleanup and restructuring of distressed PF should be accelerated," and diagnosed, "It is time for the financial sector to promptly resolve distressed assets to minimize additional losses caused by PF site failures."
Participants from the construction industry expressed concerns that construction and real estate funding could shrink further due to the combined effects of political risk dampening investment sentiment and strengthened risk management by financial companies, and presented various proposals. First, they requested a phased relaxation of the elevated Stage 2 Stress Debt Service Ratio (DSR) applied outside the Seoul metropolitan area, where unsold inventory is severe, and exceptions for provincial loans in bank household loan management targets to improve loan regulations.
Furthermore, the construction industry proposed tax relief for multi-homeowners to revive the provincial real estate market, rapid execution of policy funds for Primary Collateralized Bond Obligations (P-CBO), and expansion of payment limits for construction companies. They also requested the establishment of secured loans for unsold collateral loans on non-residential buildings after completion and credit enhancement through the Korea Credit Guarantee Fund for mid-sized and small construction companies to secure quality private construction payments. Other proposals included postponing the application timing of PF system improvements such as raising the developer's equity ratio and differential risk weights by industry, as well as delaying the schedule for strengthening mutual finance sector reserve requirements.
In response, Governor Lee said, "We will carefully examine areas where policy effects have not reached to help the construction industry regain vitality," and added, "The opinions presented by the construction industry will be actively reviewed in consultation with the government, and tasks that can be implemented immediately will be reflected as priority tasks next year and promoted."
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