Ye: "Real Estate PF Defaults Hidden by Maturity Extensions... Must Be Resolved Swiftly"

Yoon Seems to Intend Delaying PF Resolution Until Next Year's General Election
Time for Swift Cleanup of Troubled PFs Needed

The Democratic Party of Korea on the 18th urged the cleanup of poor project financing (PF). They emphasized the need to sort out real estate PF based on the principle of 'self-responsibility.' Regarding household debt, they called for the implementation of urgent support policies such as proactive debt restructuring targeting vulnerable borrowers.

Democratic Party lawmakers from the National Assembly's Planning and Finance Committee and the Political Affairs Committee held a press conference that day to address responses to real estate PF and household debt.

They stated, "Real estate PF and household debt share common causes such as abundant liquidity due to low interest rates and overheating of the real estate market, but they require clearly different approaches regarding responsibility and support targets." They added, "Real estate PF issues should be resolved under the self-responsibility principle of developers, construction companies, and financial institutions who pursued excessive real estate development profits, whereas household debt is the government's responsibility, as it shifted losses from failed real estate policies and COVID-19 business losses into financial debt rather than fiscal spending, unlike advanced countries."

Regarding government measures related to real estate PF, they said, "Although it appears to be managed stably on the surface, most PF projects only avoid revealing insolvency through maturity extensions agreed upon by developers and major creditors. The land prices, which have already formed a bubble at high levels, need to decrease for PF restructuring to allow new operators to proceed," they argued.

Democratic Party lawmakers warned, "The Yoon Seok-yeol administration is likely to delay the cleanup of insolvencies until the general election next year and then handle them all at once. This could cause enormous losses and market confusion not only for developers and construction companies but also for the financial sector." They insisted, "Now is the time for the real estate PF market to undergo cleanup of insolvent PFs rather than merely surviving through liquidity supply."

Specifically, they proposed that independent evaluation agencies assess the business viability of real estate PF projects with loans above a certain scale, sorting out the good from the bad. Based on the business viability rating results, they suggested applying tiered reserve fund guidelines to financial institutions. For projects with recovery potential, they recommended financial institutions resolve issues through voluntary agreements, while insolvent PFs should be liquidated, with collateral assets auctioned or publicly sold. Additionally, to support liquidity for asset sales, they proposed expanding funds at the Korea Asset Management Corporation (KAMCO). For insolvent financial institutions arising during the cleanup process, they suggested capital expansion or restructuring measures.

Regarding household debt, they demanded the establishment of urgent support policies such as proactive debt restructuring for vulnerable borrowers and small business owners pushed to credit limits due to falling real estate markets, soaring loan interest rates, and COVID-19 debts. In this context, they called for financial institutions to proactively (privately) restructure debts of credit-vulnerable borrowers, apply the New Start Fund to loans of small business owners and self-employed individuals, and implement strong household debt reduction policies. These debt reduction policies include halting financial policies that stimulate the real estate market, reducing the guarantee limits for Jeonse loans, and narrowing exceptions to the DSR (Debt Service Ratio) regulations.

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