Gov't to pour W33tr in PF guarantees into 2027, ease equity rules for residential projects

Public guarantees expanded for viable projects, normalization funds for distressed sites

Guarantee thresholds lowered for high-end homes, quasi-housing; relocation loan support strengthened

Residential PF rules temporarily eased; non-residential and regional distress to remain under watch

10 banks and brokerages to channel private capital

Minister of Land, Infrastructure and Transport Kim Yun-deok briefs reporters on a rapid housing supply plan to stabilize the jeonse, monthly rent and sales markets at Government Complex Seoul in Jongno-gu, Seoul, on Thursday morning. From left: First Vice Minister of Economy and Finance Lee Hyeong-il, Minister Kim, FSC Chairman Lee Eok-won and Office for Government Policy Coordination Director Im Gi-geun. [Yoon Chang-bin]

The financial authorities' housing supply package centers on sharply expanding public guarantees for viable real estate project financing sites to accelerate ground-breaking, while channeling normalization funds into distressed sites to restart stalled projects. Public PF guarantees will be scaled up to 33 trillion won ($23.3 billion) in 2027 — the year with the fewest planned housing starts over the next five years — to minimize supply gaps. The plan also defers the equity ratio regulation for residential PF sites by two years, eases guarantee requirements and draws in private-sector financing to unclog funding bottlenecks in the housing supply pipeline.

The Financial Services Commission's "Comprehensive Financial Measures for Real Estate Market Stabilization," announced Thursday, focuses on expanding public guarantees for financially sound PF projects to boost capital supply. PF guarantees will be expanded to 23 trillion won this year, 33 trillion won in 2027 and 30 trillion won in 2028. The concentration in 2027 reflects the fact that planned housing starts that year — at 249,000 units — are the lowest of any year in the next five-year period.

The package also includes deregulation measures to boost housing supply. The centerpiece is a two-year deferral of the real estate PF equity ratio regulation, originally set to take effect in 2027, pushing implementation back to 2029. The original rule called for a phased increase in the equity-to-project-cost ratio: 5 percent in 2027, 10 percent in 2028, 15 percent in 2029 and 20 percent in 2030. The intent was to require developers to build up front-end capital to prevent a recurrence of PF-triggered crises such as the Legoland incident.

The immediate priority of expanding housing supply took precedence, however, and the authorities decided to temporarily defer the measure for residential project sites. On concerns about PF insolvency, the FSC said the deferral was limited to residential sites "given that the bulk of PF distress has been concentrated in non-residential and regional PF projects," adding that the exemption covers not only apartments but also housing, housing construction sites and quasi-housing.

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

The measures also include improvements to the guarantee system and stronger support for redevelopment and reconstruction projects, with a focus on converting bridge loans to main PF loans to bring forward ground-breaking.

Under the existing guarantee system, high-priced homes — those priced above 1.2 billion won — were excluded from guarantee coverage. Going forward, shared project costs such as land expenses for units priced above 1.2 billion won within the same complex will be covered. The change, aimed at smoothing the transition to main PF loans by raising guarantee limits to realistic levels, takes effect immediately as an internal measure by the Korea Housing Finance Corporation. On the demand side, mortgage lending on homes priced above 1.5 billion won remains capped at between 200 million won and 400 million won, continuing to restrict high-end home loans — while on the supply side, public guarantees will now extend to the same high-priced project sites.

The guarantee eligibility requirement of "at least 70 percent housing" will also be relaxed to "at least 70 percent housing plus quasi-housing" — a category that includes officetels, dormitories and other non-housing structures that can serve as residential facilities. The change takes effect through an amendment to Korea Housing Finance Corporation's internal regulations on Aug. 31.

Support for redevelopment and reconstruction projects takes three forms. A new guarantee product for redevelopment and reconstruction loans — covering project costs, cost-sharing contributions and relocation expenses — will be introduced in January next year, featuring a 0.1 percentage point reduction in guarantee fees, primarily targeting mid-sized construction companies ranked within the top 50 by construction volume. Starting Aug. 31, the collateral recognition standard for calculating the loan-to-value ratio on relocation loans will shift from the current pre-project asset appraisal value to whichever is greater between the pre-project and post-project asset appraisal values. A new guarantee product for "additional relocation loans" — a business loan through which contractors and associations borrow from banks and on-lend to association members when the standard relocation loan limit of 600 million won under the 40 percent LTV cap in regulated zones falls short — will also be introduced in January next year.

A notable feature of the change to the LTV calculation method for relocation loans is that it expands the loan ceiling without touching the regulatory ratio itself. The post-project asset appraisal value — an estimate of the value of newly built housing after redevelopment is complete — is typically higher than the pre-project figure. The 40 percent LTV ratio in regulated zones stays unchanged, but enlarging the collateral value used as the denominator means association members can borrow more for relocation.

Financial support for rental housing operators will also be strengthened. A new operating-fund guarantee product for completed rental properties will be introduced, providing loans of up to 90 percent of the rental housing value (LTV). Tenant deposits will be deducted to protect renters. Business loans for rental operators will shift from short-term, variable-rate to long-term, fixed-rate structures to improve cost stability. Legislation to establish a legal basis for issuing mortgage-backed securities for rental housing will be pursued to support long-term fixed-rate refinancing, with the measure targeted for 2027.

The exceptions to the ban on mortgage lending to housing sales and rental business operators in the greater Seoul area and regulated zones will also be broadened. Such business mortgages are currently prohibited in principle in those areas, with exceptions allowed only when new housing is being built, when the borrower is a public-interest corporation, or when the loan is for the purpose of returning tenant deposits. Two new exceptions will be added: purchasing newly built non-apartment housing, and purchasing housing slated for demolition for the purpose of building new non-apartment units. Both new exceptions involve non-apartment housing, signaling an intent to broaden supply beyond the apartment-heavy market to include multi-family and other housing types.

There will be a lag, however, before the measures are felt on the ground. Of the 34 detailed tasks in the package, 15 — including institutional self-measures — will be carried out this month, and seven more will be implemented before year-end. The remaining 12 require legislative amendments or budget action and will carry over into 2027.

The FSC framed housing supply financing as a high-productivity activity consistent with the government's policy direction of "productive finance," and said it would encourage the financial sector to expand PF capital supply for housing. A regular consultative meeting involving five banks, five brokerages and the construction industry will be launched immediately.

The FSC defined housing supply financing as a productive activity that does not conflict with the government's push to redirect financial flows toward productive sectors. While the government has sought to reallocate capital away from real estate, it now views PF funding that actually delivers housing as falling within the scope of productive finance.

On the liquidity front, a market stabilization program calibrated to varying project sizes and credit profiles will support stable funding for construction company corporate bonds and PF asset-backed commercial paper. From March through July this year, amid tensions in the Middle East, purchases of corporate bonds and similar instruments by sector totaled 1.75 trillion won for construction (20.1 percent), 1.37 trillion won for retail (16.0 percent) and 1.22 trillion won for petrochemicals (14.3 percent).

Dedicated support channels will also be established. A "PF Financial Difficulties Resolution Center" will be set up at the Financial Supervisory Service, and a "Construction Company Financial Difficulties Resolution Center" at Korea Development Bank, with hotlines connecting them to Kamco, Korea Housing Finance Corporation, financial institutions and construction industry associations. The centers will provide practical support including guidance on guarantee products and matching with Kamco funds and syndicated loans. The initiative will be coordinated with existing bodies — including the Ministry of Land, Infrastructure and Transport's rapid support center and the Office for Government Policy Coordination's rapid supply TF — to clear supply bottlenecks.

rim@heraldcorp.com