The future city fund for financing the reconstruction project of old planned cities, including first-phase new towns, will begin recruiting investors this December.
The Ministry of Land, Infrastructure and Transport and the Housing and Urban Guarantee Corporation (HUG) will hold an investment policy briefing for the establishment of the future city fund at the Conrad Hotel in Yeouido, Seoul, on the afternoon of the 27th.
This is an opportunity to explain the old planned city policy and fund structure ahead of recruiting investors for the future city fund. Public institutions, pension funds, mutual aid associations, banks, and insurance companies will attend.
The future city fund is a loan-type fund that provides loans to project executors for the reconstruction of old planned cities. It lends project costs and generates revenue through the interest received. Cooperatives can secure initial project costs of up to 20 billion won through the fund.
To ensure stable operations, HUG guarantees all loans. The investors' revenue will be the amount after deducting fees from the interest, and it is expected to be around 4% considering the typical HUG guaranteed loan interest rate.
Typically, in reconstruction projects, construction companies guarantee that cooperatives can borrow from financial institutions, and financial institutions evaluate the project performance and the construction company's creditworthiness to make the loans. Then, the structure is to repay the loans with the proceeds from the sales, and this is a fund creation to change that.
Jin Hyun-hwan, the first vice minister of the Ministry of Land, Infrastructure and Transport, noted that 'in maintenance projects so far, residents had to finance at high interest rates, and construction companies had to bear long-term project uncertainties' and said, 'We will support the future city fund to become a case that transforms the financing paradigm.'
The future city fund consists of a parent fund that pension funds and others invest in and child funds that directly lend project costs for each reconstruction project area. It is a series fund that continuously establishes funds of the necessary scale.
To attract investment smoothly, parent fund investors will be granted priority equity rights to child funds. The parent and child funds will allow equity liquidity. This will enable investors to transfer and trust fund shares to cash in investment funds early.
The loans will not be limited to redevelopment and reconstruction but will target various project types such as housing complexes, central districts, and facility maintenance. Currently, initial project cost loans for cooperatives are available up to 6 billion won. However, the future city fund will expand the support target to include trust companies and increase the support limit to a maximum of 20 billion won (2% of total project costs).
When calculating the project cost loan limit, the practice of excluding construction costs will change to allow the total loan amount to reflect construction costs.
The Ministry of Land, Infrastructure and Transport plans to announce its plan to select an operator in June this year to implement loans in line with the timing of when significant funding requirements arise in the first-phase new town maintenance project. In December this year, it will recruit investors for the first parent fund, which amounts to 600 billion won.