The Housing and Urban Guarantee Corporation (HUG) is pushing to extend the expanded real estate project financing (PF) loan guarantees, which are set to expire at the end of this month, for another year. As part of the housing supply activation plan implemented in October 2023, the government and HUG temporarily expanded HUG's PF loan guarantees, which had previously been extended for a year until June 2024.
According to the construction industry on the 5th, HUG is reviewing whether to extend the PF loan guarantee expansion policy set to expire at the end of this month. A HUG official said, "We are ultimately monitoring the market situation to determine whether to extend the guarantee expansion period, which ends this month," adding, "We will decide after consulting with relevant ministries."
The PF guarantee expansion measures implemented by HUG since October 2023 consist of three parts. Firstly, the guarantee limits have been increased from 50% of the total project cost to 70%. For a PF project valued at 100 billion won, HUG used to guarantee only up to 50 billion won, but now guarantees up to 70 billion won.
Measures that previously did not provide guarantee certificates to small and medium construction companies ranked above 700 in construction capability assessment have also been temporarily relaxed, allowing guarantee reviews regardless of construction capability assessment rankings.
In addition, the requirement to invest part of one's own capital into projects in order to receive guarantee certificates has been relaxed. Previously, construction companies ranked within the top 100 in construction capability were required to invest the greater amount of either 2% of the total project cost or 10% of the land cost into the PF before receiving a guarantee certificate. However, this has been relaxed so that only the greater amount of 1% of the total project cost and 5% of the land cost is needed to secure a guarantee certificate.
Since the implementation of HUG's PF loan guarantee relaxation measures, the scale of guarantees has continued to increase. Looking at HUG's PF loan guarantee scale by year, it was 57.43 billion won in 2023 but increased to 132.51 billion won in 2024, more than doubling. This year, 15.864 billion won in PF loan guarantees were also provided in the first quarter.
According to the Financial Supervisory Service, the PF exposure across the entire financial sector was 210.4 trillion won as of the third quarter of last year (end of September). Of this, the loan amount at risk of defaults by construction companies is 22.9 trillion won. The bridge loans and land-backed loans total 18.3 trillion won, while the main PF amounts to 4.6 trillion won.
Lee Eun-hyung, a researcher at the Korea Construction Policy Institute, noted, "Although the situation has somewhat improved due to factors like interest rate cuts compared to 2022-2023, the construction market has still not recovered, making it difficult for construction companies to secure PF funding."