LH Introduces HUG Guarantee: "We Take Responsibility for Unsold Units, No Cost Increase for Delays Due to Safety or Strikes" (Comprehensive)

LH Private Sector Cooperation Governance Forum
Attended by Over 60 Companies Including Samsung C&T
5,181 Units in Private Participation Projects Planned for Second Half
Review Committee Accounts for 80% of Bid Evaluation
Industry: "Str

Korea Land and Housing Corporation (LH) will directly implement a total of 5,181 units of public housing projects with private sector participation (Minchan) in the second half of this year and plans to introduce a new guarantee product to ease the financial burden on private companies. This measure aims to prevent construction companies from shouldering increased risks of unsold units in Minchan projects and to encourage greater private sector participation. However, LH made it clear that "even if the construction period is extended due to safety issues or labor strikes, there are no plans to adjust the project budget."

Attendees are listening attentively to the LH presentation at the "LH Private Sector Cooperation Governance Forum" held by Korea Land and Housing Corporation (LH) on the 25th at the LH Gyeonggi Southern Regional Headquarters in Seongnam, Gyeonggi Province. The event was attended by representatives from over 60 construction companies, including Samsung C&T and Hyundai Engineering & Construction, as well as more than 30 design firms. Photo by Choi Seoyoon

On the 25th, LH held the "LH Private Sector Cooperation Governance Forum" at its Gyeonggi Southern Regional Headquarters in Seongnam, Gyeonggi Province, and announced its Minchan implementation plan for the second half of the year. The project sites include four districts in the Seoul metropolitan area, including the third phase new towns, totaling eight blocks. The breakdown is as follows: Namyangju Wangsuk 2 (1,082 units), Bucheon Daejang (574 units), Incheon Gyeyang (1,216 units), and Suwon Dangsu (2,309 units), amounting to 5,181 units in total, with a project budget of 1.2 trillion won. LH will bundle the blocks into three packages and begin recruiting operators starting next month. Once operators are selected in December, they will apply for housing project (change) approval in March of next year, with construction scheduled to begin in June 2026.

Minchan is a project jointly implemented by LH and private construction companies, supplying public housing by leveraging private sector technology and brands. Private brands will be featured in LH apartment complexes. Previously, construction companies could choose between a "profit-sharing" or "turnkey" model, but following the September 7 policy, Minchan will be fully converted to the turnkey model. Unlike the profit-sharing model, where sales profits are divided, the turnkey model pays construction companies only a construction margin.

The core of the September 7 policy, the first housing supply measure of the Lee Jaemyung administration, is for the public sector to take the lead and significantly increase housing supply in the Seoul metropolitan area. To this end, LH will halt the sale of public land and shift to direct implementation (turnkey model). Rather than the previous method of selling land and exiting, LH will now lead both project implementation and sales, aiming to accelerate both the pace and volume of supply.

New HUG Guarantee Introduced for Project Financing

On this day, LH announced the introduction of a new financial support system using HUG guarantees to reduce the financial burden on private construction companies participating in these projects. This product is designed to assist when unsold units occur in Minchan projects, which can otherwise increase the financial burden on private companies.

If unsold units occur in an LH project, LH may be unable to pay the monthly construction costs (progress payments) to the construction company on time. LH covers construction costs with funds received from sales. However, if interim payments fall short of the progress payments, construction companies must cover the gap first. Although LH settles the interest after project completion, this temporarily increases the financial burden on construction companies.

LH is preparing a guarantee product with HUG for such situations. This product can guarantee up to 100% of the shortfall in sales revenue. The loan interest rate is under review by HUG, and the product will be piloted for some of the projects to be announced in the second half of the year.

No Budget Adjustments Even if Construction Period Is Extended Due to Safety or Strikes

LH stated that there are no plans to adjust the project budget even if the construction period is extended due to safety issues or labor strikes. LH explained, "Site management and safety management are fundamentally the responsibility of the private operator," adding, "Exceptionally, in unpredictable situations such as a national crisis like COVID-19, adjustments may be possible in accordance with government-level measures."

Regarding concerns that deterioration in LH's financial soundness could lead to a reduction in directly implemented projects or cuts in construction costs, LH drew a clear line. LH responded, "As we have increased supply from 24,000 units last year to 30,000 units this year, the volume of Minchan projects will actually expand."

However, direct implementation means that, unlike selling land, compensation and development costs cannot be recovered immediately and must instead be recouped later through sales proceeds, resulting in a delayed timeline for capital recovery.

In response, LH emphasized, "By utilizing private capital to construct public housing, we will reduce the financial burden, and any differences in financing rates based on the construction company's credit rating will be addressed through the LH guarantee program. There will be no reduction in construction unit prices or the volume of Minchan projects."

"Minchan Is Ultimately a League for Large Companies"

Some mid-sized construction companies voiced dissatisfaction, saying that the process is increasingly dominated by large companies. A representative from a mid-sized construction company, interviewed immediately after the event, stated, "We received the detailed information today, but I heard that the large construction companies had already formed consortiums and were prepared for which of the three packages they would join. For mid-sized companies, we are at the point where we have to cover all design costs ourselves just to have a chance to participate in a consortium." He added, "They say we should strengthen our brand competitiveness, but you need opportunities to build a brand. With the entry barriers so high, I don't know how we are supposed to compete."

Another representative from a mid-sized construction company explained, "Unlike large companies that have focused on redevelopment or private projects, mid-sized companies have mainly purchased LH land and implemented projects themselves. Now that LH no longer sells land, that business opportunity has disappeared, and we have no choice but to turn to Minchan for survival, but realistically, it is not easy."

There were also criticisms of the public offering review structure. This representative pointed out, "Because the evaluation by the review committee carries too much weight, there is talk that large companies with connections have an advantage." Currently, the Minchan turnkey public offering allocates 200 points out of 1,000 to quantitative evaluations such as price, while 800 points are given to qualitative evaluations by the review committee, including development plans, financial plans, and management and operation plans.

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