"Establishment of PF Loan Refinancing Guarantee and Special Case for Single-Home Purchase of Unsold Units After Completion"

'Construction Industry Vitality Recovery Meeting'
Ministry of Land, Infrastructure and Transport, Ministry of Employment and Labor, Financial Services Commission Join Hands
Liquidity Support and Risk Mitigation

The government is taking steps to revitalize the construction industry by expanding housing supply. To this end, it will establish a refinancing guarantee for real estate project financing (PF) loans and reduce the original acquisition tax by half for businesses that utilize unsold houses after completion as rental properties.

Additionally, construction companies facing difficulties due to restructuring from workouts will receive guarantee support to ensure uninterrupted construction progress, and subcontract payments, including workers' wages, will be converted to direct payments to protect partner companies. Delays in move-in for buyers affected by sales accidents will also be minimized.

On the afternoon of the 6th, the Ministry of Land, Infrastructure and Transport (MOLIT) announced follow-up measures to supplement the construction market at a meeting titled "Meeting for Revitalizing the Construction Industry" held at the Construction Hall in Nonhyeon-dong, Gangnam-gu, Seoul. The Ministry of Employment and Labor and the Financial Services Commission also participated in the meeting.

The site of Taeyoung Construction's Seongsu-dong development project located in Seongdong-gu, Seoul. / Photo by Jinhyung Kang aymsdream@

Accelerating Business Normalization with PF Guarantees and Benefits for Malignant Unsold Houses

First, from the perspective of funding procurement and liquidity support, MOLIT decided to issue guarantees through the Housing and Urban Guarantee Corporation (HUG) so that projects that received high-interest PF loans without guarantees can refinance at lower interest rates. For example, a construction company that borrowed a non-guaranteed PF loan at an annual interest rate of 9.5% from Bank A can switch to a 6.0% PF loan from Bank B through HUG guarantees. Along with this, the scale of PF asset-backed commercial paper (ABCP) loan conversion guaranteed by construction companies and performance guarantee obligations will be expanded from the existing 3 trillion won to 5 trillion won and 6 trillion won, respectively, and non-residential PF guarantees will increase to 4 trillion won.

To improve local business conditions, the tax burden on unsold houses after completion will also be eased. For unsold houses completed this year with an acquisition price of 300 million won or less and an exclusive area of 85㎡ or less, businesses that utilize them as rental housing (with contracts of two years or more) can receive up to a 50% reduction in the original acquisition tax for one year. The tax benefits also apply to the first buyers of unsold houses. For the next two years, buyers of unsold houses with an exclusive area of 85㎡ or less and priced at 600 million won or less can receive special exceptions excluding these houses from the housing count for tax calculation purposes. This also applies to existing one-house owners who purchase such properties.

Furthermore, MOLIT plans to strengthen the functions of the public-private joint PF Adjustment Committee and the Construction Dispute Mediation Committee to help resolve conflicts at project sites. Private projects facing difficulties will be reviewed by LH Corporation for feasibility and then purchased and normalized. LH may implement or sell the projects. If project feasibility declines, restructuring will be accelerated using a 2.2 trillion won PF normalization fund.

Direct Payment of Subcontract Payments...Reducing Restructuring Risks

MOLIT introduced measures to reduce construction company risks, such as new subscriptions and extensions of guarantees (including defect repairs) for projects with delayed or halted construction. In the case of Taeyoung Construction, discussions are underway with the Korea Development Bank to ensure smooth issuance of new guarantees even before the workout implementation agreement scheduled for May 11. For projects with issued guarantees, fund withdrawals will be promptly approved, and alternative pools will be prepared in case of contractor replacement.

Damage to partner companies and workers caused by workouts and construction stoppages will also be minimized. MOLIT has mandated that subcontract payments, including workers' wages, be converted to direct payments from the ordering party for public projects. For private projects, consultations with the lending consortium will be conducted. Taeyoung Construction reportedly has completed this conversion at 80 out of 128 construction sites.

Additionally, even if the prime contractor issues subcontract payments as accounts receivable, wages will be encouraged to be paid directly in cash, and partner companies will be enabled to quickly convert accounts receivable into cash through secured accounts receivable loans (external loans). Currently, the Korea Development Bank plans to repay 45.2 billion won of discounted external loans for Taeyoung Construction in February. Partner companies with sales dependence of 30% or more on a specific construction company will have their debt repayments deferred for one year.

For buyers, guarantees will be promptly executed to reduce damages caused by move-in delays. Buyers can receive full refunds of sales payments or replace the contractor by complex. A MOLIT official stated, "We will introduce notification talk services so buyers can be informed of construction progress and guarantee execution procedures, and we will also consider cooperating with financial institutions to extend the maturity of interim payment loans."

Resumption of Construction at Two Taeyoung Construction Sites

The Ministry of Employment and Labor will promptly inspect 105 construction sites nationwide under Taeyoung Construction to decide on resuming work. Construction resumed on April 27 at the Sangbong-dong site in Seoul after clearing 1 billion won in unpaid wages. Construction also restarted on April 29 at the Sincheon-dong site in Daegu.

The Financial Services Commission will operate a market stabilization program worth 85 trillion won. Regarding Taeyoung Construction, a corporate improvement plan will be prepared by April 10, and based on this, a "model case for smooth landing of real estate PF" will be created.

Park Sang-woo, Minister of MOLIT, said, "The construction industry should take this situation as an opportunity to diversify portfolios, develop technologies, and expand overseas into high value-added sectors. The government will support the revitalization of the construction industry in every possible way."

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