While the government has unveiled plans to strengthen public guarantees to promote new housing supply through the August 13 Comprehensive Financial Measures for Real Estate Market Stabilization, a suggestion has been made that the supported funds must be managed to ensure they actually lead to the execution of project financing (PF) loans, construction starts, and completions.

The Construction & Economy Research Institute of Korea (CERIK) made the remarks in a report titled "Evaluation of and Areas for Improvement in the August 13 Financial Support Measures for Housing Supply" released today (September 2), stating that while the financial support sector of the August 13 measures is significant in that it substantially expanded public guarantees, it has certain limitations in resolving structural bottlenecks in PF financing and funding difficulties in the field.

The report diagnosed that the real estate PF and construction finance markets are currently in a transition phase where "risk reduction leads to a contraction in supply," as restructuring of troubled business sites and reduction of risk exposure are underway, while fundraising even for normal business sites is contracting and liquidity burdens on construction companies are growing.

For this reason, the report advised that policy should focus on rapidly restructuring distressed PFs, supporting the resumption of projects capable of normalization, and simultaneously helping normal business sites—which account for 90 percent of the total—smoothly procure funds without financial bottlenecks across all stages of the project from bridge loans to main PFs, construction starts, and completions.

In this regard, the government announced financial support measures in the August 13 package, including supplying a total of 86 trillion won in PF guarantees through the Korea Housing Finance Corporation (HF) and the Korea Housing & Urban Guarantee Corporation (HUG) by 2028, further expanding the guarantee scale of the Korea Housing Finance Corporation's "Construction Cost Plus PF" to 5 trillion won, and additionally lowering guarantee fees upon early construction commencement.

Regarding this, the report pointed out, "While it is meaningful in that it comprehensively considered guarantee expansion, PF normalization, and support for small and medium-sized builders, performance management is necessary to see whether the expansion of guarantees for normal business sites and interest subsidies actually lead to lower PF interest rates and additional fund supply."

In the short term, the report suggested establishing a system to ensure continuity of funds from construction start to completion, such as rationalizing the public guarantee risk-weight application system to induce substantial reductions in PF interest rates, and operating a fast track for use changes to urban-type lifestyle housing or officetels for metropolitan area business sites whose construction has been delayed due to financial difficulties even after obtaining permits.

In the mid-to-long term, the report emphasized that to resolve the risk structure biased toward constructors and build a financial ecosystem where risks and returns among participating entities are reasonably linked, it is necessary to securitize construction payment receivables, swiftly support the conversion of bridge loans to main PFs, improve PF capital structures and risk-sharing, and build PF management infrastructure.

Na Kyung-yeon, head of the Economic, Financial & Urban Research Division at the Construction & Economy Research Institute of Korea, said, "The success or failure of these measures depends not on the scale of guarantee supply, but on how much the supported funds are actually converted into the execution of PF loans, construction starts, and completions." He added, "As a supply cliff is a matter of concern, the government, financial institutions, construction companies, and developers must organically connect to restore a stable housing supply foundation."

(Photo: Yonhap News)