[Donmaekgyeonghwa] Despite Government's 50 Trillion+α Emergency Support, Industry Concerns Remain

2.7 Million Housing Units Supply Disruption Inevitable
Regulatory Easing Needed to Stimulate Transactions

Photo by Asia Economy

As concerns over the insolvency of real estate project financing (PF) loans have emerged, the government has announced emergency measures, but industry worries have not easily subsided. Even if some problematic PF issues are resolved in the short term, the long-term trend of rising interest rates and fears of an economic recession remain. There are also concerns that if the economic contraction caused by real estate PF intensifies, the government's plan to supply 2.7 million housing units could be disrupted. This is why calls for more bold and proactive government responses are growing.

For now, the government has injected funds amounting to 50 trillion won plus alpha (+α) to put out the urgent fire. On the 23rd, the Ministry of Economy and Finance, the Bank of Korea, the Financial Services Commission, and the Financial Supervisory Service held an emergency economic and financial meeting and decided to implement liquidity supply programs. These include a 20 trillion won Bond Market Stabilization Fund (Bond Stabilization Fund), a 16 trillion won program to purchase non-investment grade corporate bonds and commercial papers (CP), 3 trillion won to support securities firms facing liquidity shortages, and 10 trillion won in business guarantee support from the Housing and Urban Guarantee Corporation (HUG) and the Korea Housing Finance Corporation.

Although the urgent fire has been put out, pessimistic outlooks still prevail in the market due to ongoing concerns about interest rate hikes and economic recession. Even if some liquidity constraints are eased, the structure does not allow money to circulate effectively at construction sites. In particular, the number of small and medium-sized construction companies struggling with market contraction, resulting unsold inventory, and deteriorating profitability continues to rise.

There are calls for the government to introduce measures to guide a soft landing of the real estate market beyond just liquidity support programs. There are also suggestions to ease the various real estate regulations tightened by the previous administration to stimulate transactions. Kim Jeong-ju, a research fellow at the Korea Research Institute for Construction Industry, said, "Excessive real estate regulations promoted by the previous government are one of the main causes increasing the risk of real estate PF loan insolvency," adding, "As the possibility of a sharp drop in real estate prices has increased, swift deregulation is necessary."

This content was produced with the assistance of AI translation services.