Construction Industry, PF Selection Reveals "Underperforming Companies Surfacing"

Financial Authorities Begin Sorting Real Estate PF 'Wheat from Chaff'
Construction Industry Welcomes as "Late but Right Direction"
"If Investment Funds Are Not Recovered, Companies Will Be Hit... Losses Must Be Minimized"

The construction industry expressed expectations on the 13th that the financial authorities' 'Real Estate Project Financing (PF) Soft Landing Measures' would lead to the full-scale cleanup of distressed projects. However, there were concerns that if companies fail to recover their investment costs during this process, distressed companies like Taeyoung Construction could resurface.

On the same day, the financial authorities announced measures such as subdividing the business feasibility evaluation classification of PF projects from three stages to four stages, and mandating that PF bonds overdue for more than six months must undergo auction or public sale within three months. While previous measures focused on extending the lifespan of distressed projects, this time the direction has shifted towards liquidation or restructuring.

The Direction Is Right, But...

The construction industry unanimously agreed that it was a "belated but correct direction." A representative from Construction Company A said, "It seems that a policy to distinguish the wheat from the chaff has been introduced because it is difficult to normalize all PF projects with poor feasibility at once," adding, "It appears to show the intention to supply funds starting with projects that have excellent feasibility to save them." A representative from Construction Company B added, "Since detailed items have been added to the previously somewhat ambiguous evaluation criteria, more meticulous feasibility reviews will be possible, and parts that were previously grouped under the 'deterioration concern' grade, making feasibility re-examination completely inevitable, are expected to improve." The authorities have divided the 'deterioration concern' grade into 'caution' and 'distress concern' in this new plan.

However, there were concerns that financial losses for contractors and trust companies would be inevitable during the cleanup of distressed projects. A representative from Construction Company C said, "The cleanup of distressed projects ultimately means that the lending syndicate is highly likely to proceed with auction or public sale procedures," adding, "Given the recent unfavorable market conditions, the lending syndicate may try to sell the land cheaply as long as they recover the loan amount." He emphasized, "In this case, developers and contractors will practically be unable to recover their invested costs." A representative from Construction Company D also added, "Losses of funds for project progress, such as bid deposits for winning contracts, are inevitable."

Distressed Construction Companies Resurface... Crisis for Regional Construction Companies

A representative from Construction Company E said, "Although this is a process of deflating bubbles in projects, if the scale of losses is large, distressed companies may come to the surface in earnest," and pointed out, "Effective measures such as financial support to minimize their losses should also be prepared." It was especially expected that companies holding many non-prime projects in regional areas, rather than projects in prime locations including Seoul and the metropolitan area, would likely face greater losses. Another industry insider said, "It is regrettable that the situation of construction companies linked to individual projects does not seem to have been comprehensively considered."

There were also responses that due to difficulties in reconciling interests among project stakeholders such as construction and financial companies, the cleanup of projects might not proceed quickly due to lawsuits and other issues. A representative from Construction Company F stated, "Although the business feasibility evaluation criteria have been subdivided, the feasibility can actually change from day to day." Eunhyung Lee, a research fellow at the Korea Construction Policy Research Institute, explained, "Since money is involved, opinions inevitably differ, and such issues are difficult to resolve at once."

Ham Youngjin, head of the Real Estate Research Lab at Woori Bank, said, "In the long term, separating distressed assets and projects requiring restructuring from normal projects is expected to reduce concerns about permits and construction starts in the real estate market and help improve the future real estate supply market," but added, "Since there are significant difficulties in reconciling interests among project stakeholders during this process, it is necessary for government authorities to closely monitor and meticulously manage the transparency, process, and results of business feasibility evaluations."

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