The Ministry’s Private Stash: The Housing and Urban Fund ④
From Easing Past Housing Shortages to a Recent Surge in Jeonse Loans
Bank Resources Tapped Through Interest Support
Lack of Transparency in Fund Management and Decision-Making
If you have ever made contributions to a housing subscription savings account, you also hold a “stake” in the Housing and Urban Fund. The same applies if you have purchased a house, land, or any type of real estate, or if you have taken out a loan using such property as collateral. When transferring ownership or establishing a mortgage, you are required to purchase National Housing Bonds, which are also a major funding source for the Housing and Urban Fund. Even a portion of the revenue from the lottery is directed to this fund. The Housing and Urban Fund is essentially “money borrowed from the public.”
The annual scale of funds raised and managed in this way amounts to 120 trillion won. Including liabilities, the total asset size reaches 225 trillion won. This makes it the third largest fund in Korea, following the Public Capital Management Fund and the National Pension Fund. Among project-based funds with specific purposes, it is the largest.
In the 1970s and 1980s, these funds were used to address housing shortages caused by rapid urbanization. They provided a solid foundation for building homes and for people to purchase their own homes. This is why the fund is credited with “contributing to housing stability,” such as by raising the housing supply rate in the past.
However, in recent years, there has been growing criticism about whether the fund has been fulfilling its original role. The proportion of jeonse loans provided by the fund has been increasing rapidly. In addition to the amount lent directly to non-homeowners, the fund has also utilized the interest support method to draw on bank resources. As a result, last year, the amount of policy funds allocated to jeonse loans exceeded 70 trillion won. This is estimated to account for more than one-third of the total outstanding balance of jeonse loans. The indiscriminate increase in jeonse loans is cited as a major factor behind the surge in household debt and is identified as one of the sources of excess liquidity in the domestic housing and real estate market.
A promotional poster for jeonse loan information displayed at a commercial bank in downtown Seoul. Photo by Yonhap News Agency
Jeonse loans differ from ordinary loans in that they are provided without physical collateral. Since these loans are based on guarantees issued by public institutions backed by the government, they are highly public in nature. Experts point out that the process by which the “Housing and Urban Fund,” a public financial resource, is artificially supplied to the market is not natural, as it has fueled market instability by injecting more funds than necessary into the overall market.
It is difficult to know who manages this massive fund, how it is managed, and on what grounds decisions are made. While the official manager of the fund is the Minister of Land, Infrastructure and Transport, and there are separate consultative bodies such as the Fund Management Deliberation Committee, there is no information on whether these bodies, which include external experts, are functioning properly.
There is no external oversight or checks in place. This is why many experts who study the Housing and Urban Fund criticize it as the “Ministry of Land, Infrastructure and Transport’s private stash.” On the 10th anniversary of the fund’s relaunch (formerly the National Housing Fund), The Asia Business Daily examined the appropriateness of its management and identified areas for improvement.
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