[PF Restructuring]② Completion and Restructuring Implementation Rate 21%... 2.8 Trillion Housing Projects Normalized

As a result of the financial authorities' restructuring efforts in the real estate project financing (PF) market, it was found that projects that have completed the liquidation and restructuring procedures account for about 21% of the total target projects (based on the first project viability assessment). The financial authorities expect that if projects worth 4.8 trillion won, scheduled for liquidation and restructuring by the end of the year, complete the procedures as planned, projects worth 9.3 trillion won, or about half of the total target projects, will have completed the restructuring process.

Considering that the second project viability assessment conducted until the end of September showed that the scale of projects requiring restructuring was only 1.9 trillion won, it is analyzed that most projects will be able to complete the liquidation and restructuring procedures by the first half of next year.

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According to the Financial Supervisory Service (FSS) on the 19th, among the 33.7 trillion won worth of projects assessed in the first project viability evaluation (applying new standards) by the end of August, 20.9 trillion won worth of projects rated as Caution (C) or Substandard (D) completed liquidation and restructuring procedures for 4.5 trillion won worth of projects by the end of October through foreclosure sales and write-offs. Of these, 2.8 trillion won worth of projects were liquidated through foreclosure sales, private contracts, and write-offs, and 1.7 trillion won worth of projects completed restructuring procedures through new fund supply and other means.

Kim Byung-chil, Deputy Governor of the FSS, explained, “As a result of liquidation and restructuring based on the first project viability assessment, the ratio of PF loans classified as fixed or below decreased by 2.0 percentage points (P), and the PF delinquency rate also dropped by 1.3 percentage points, showing improvement effects.”

Accordingly, 122 residential facility-related projects completed restructuring, which was evaluated to have promoted housing supply. Among the projects subject to liquidation and restructuring, residential facility-related projects totaled 10.9 trillion won, of which 2.8 trillion won (122 projects) completed procedures by the end of October. In particular, 1.3 trillion won worth of apartment projects and 1.5 trillion won worth of non-apartment projects were liquidated and restructured, resulting in a housing supply effect equivalent to about 35,000 housing units, according to the FSS analysis.

Deputy Governor Kim said, “The housing supply effect of 35,000 units is the expected volume when construction proceeds normally in the future after difficulties are resolved through restructuring and other measures,” adding, “If the remaining projects are smoothly liquidated by the first half of next year, an additional housing supply promotion effect equivalent to about 104,000 units will appear.”

Furthermore, the volume of new real estate PF loans handled by the financial sector in the third quarter of this year is increasing, and the proportion of bridge loans has also risen. The amount of new PF loans decreased from 12.8 trillion won at the end of last year to 9 trillion won in the first quarter of this year but increased to 15.1 trillion won in the second quarter and 16.4 trillion won in the third quarter. The proportion of bridge loans also rose from 17.4% at the end of last year to 25.3% in the third quarter.

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However, the FSS judged that continuous management of non-performing loans and delinquency rates is necessary as the application of strengthened PF project viability assessment standards has increased the volume of caution and substandard loans. The ratio of PF loans classified as fixed or below surged from 5.2% at the end of last year to 10.1% at the end of June this year and recorded 11.3% at the end of September.

Deputy Governor Kim stated, “Despite additional provisions based on project viability assessments, capital ratios by industry mostly increased compared to the end of last year due to capital increases and other factors,” adding, “We plan to actively encourage financial companies to smoothly implement liquidation and restructuring plans to improve the ratio of fixed or below loans and, if not implemented, to enhance loss absorption capacity through sufficient provision accumulation.”

Meanwhile, the government plans to support the smooth progress of real estate PF system improvement measures, such as rationalizing responsibility for project completion and improving PF fee practices. Through the responsibility for project completion improvement task force (TF), the government plans to review in the first quarter of next year the alignment of reasons for extending responsibility for project completion in contracts for construction, PF loans, and trusts, as well as specific measures when the responsibility completion deadline is exceeded. The improvement of PF fee practices, which includes abolishing maturity extension fees, will be implemented across all financial sectors through the establishment of model regulations in January next year.

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