South Korea to more than double housing finance support to W47.8tr

PF guarantees to expand 2.2-fold, with 33 trillion won focused on 2027 ground-breakings

Distressed project support boosted; residential PF equity rules delayed to 2029

A housing reconstruction site in Seoul. [Herald DB]

The government plans to sharply expand financial support for housing supply to prevent project financing problems from stalling construction at the ground-breaking stage. It will raise the support package from 26.3 trillion won ($18.6 billion) to more than 47.8 trillion won, channeling public guarantees into viable projects to convert planned housing units into actual construction starts, while injecting recovery funds into distressed sites to restart stalled developments. The government also plans to delay a planned equity ratio requirement for project financing by two years to ease developers' funding burden and accelerate housing supply.

The Financial Services Commission announced the measures Thursday as part of a comprehensive financial package to stabilize the real estate market.

The more than 47.8 trillion won in financial support centers on 28.7 trillion won in public guarantees for viable project financing sites. The package also includes 1.1 trillion won from the existing Korea Asset Management Corp. PF normalization fund, more than 3 trillion won from a newly created KAMCO PF support fund, a 5 trillion won bank-and-insurance-sector PF syndicated loan facility, and 10 trillion won in private-sector normalization funds. The 28.7 trillion won in public guarantees represents the annual average planned for 2026 through 2028.

The Financial Services Commission office at Government Complex Seoul in Jongno-gu, Seoul. [Yonhap]

The public guarantee program — the largest component of the package — will begin expanding this year. The FSC raised this year's supply target from 16.9 trillion won to 23 trillion won, with 33 trillion won planned for 2027 and 30 trillion won for 2028. The annual average over the next three years will reach 28.7 trillion won, roughly 2.2 times the 13.1 trillion won average of the preceding three years. The FSC will concentrate guarantees in 2027, when the number of units scheduled to break ground is at its lowest, at 249,000.

Measures to encourage early ground-breaking will roll out in phases starting this month. The "construction cost plus PF guarantee" program will expand to 5 trillion won, and a 30 percent cut in guarantee fees will be extended through the end of 2027. Sites that begin construction within three months of receiving guarantee approval will receive an additional 10 percent fee reduction. A measure raising the PF guarantee ratio for residential projects from the current 90 to 95 percent range to 100 percent will take effect at the end of this month.

Recovery funding for distressed project financing sites will also be expanded. A newly created KAMCO PF support fund of more than 3 trillion won will direct at least 60 percent of its capital into residential projects. The bank-and-insurance-sector PF syndicated loan facility will grow from 1 trillion won to 5 trillion won, and the private-sector PF normalization fund will increase from 7.3 trillion won to 10 trillion won. The FSC estimates the new 3 trillion won KAMCO fund alone could support the supply of at least 18,000 housing units.

A planned equity ratio requirement for project financing, designed to strengthen financial soundness, will be delayed by two years for residential projects. The regulation would require developers to gradually increase the share of their own capital committed to PF projects. Originally set to take effect in 2027, it will now apply from 2029, reflecting concerns that the upfront capital burden could slow housing construction starts. Specific ratios and implementation details will be finalized by the end of this year.

The measures stem from the FSC's assessment that as the real estate project financing market has stabilized, the overall volume of funding has shrunk, tightening liquidity at housing project sites. Total PF exposure has fallen from 231.1 trillion won at the end of 2023 to 169.8 trillion won as of the end of March this year. "To boost housing supply, comprehensive financial support is needed — including expanded public guarantees, deregulation, and drawing in private-sector participation," the FSC said.

Of the 34 detailed tasks in the package, the FSC plans to advance 15 — including measures agencies can implement on their own — this month, and to carry out seven others requiring amendments to enforcement decrees or system development by the end of this year. The remaining 12 tasks, which require legislative changes or budget measures, will be pursued next year.

rim@heraldcorp.com