The government will establish a 1 trillion won project financing (PF) revitalization anchor real estate investment company (REITs) to support PF projects from the early stages. This involves lending funds at low interest rates for the land expense of projects that are struggling to secure financing due to a freeze in the PF market. This is the first time the government has supported the bridge loan phase of development projects.
In response to this government support, the development industry expresses hope, noting that it can 'unblock the flow of projects.' However, there are criticisms that injecting national funds into private development projects without guarantees of moving to the main PF phase could lead to 'moral hazard.'
The Ministry of Land, Infrastructure and Transport announced on the 19th that it has allocated 300 billion won in the supplementary budget for the establishment of the PF revitalization anchor REITs. This REIT will be established with a scale of 1 trillion won. The government will invest 300 billion won, while the operating company and institutional investors will invest 100 billion won, and the remaining 600 billion won will be funded through corporate bond issuance.
The anchor REIT will invest 10-20% of the total project cost at the land acquisition stage by selecting excellent dwelling development business sites. Previously, project developers had to execute bridge loans at interest rates exceeding 10%, but by receiving investment from this anchor REIT, they will be subject to an interest rate of 5-6%. A bridge loan is a short-term loan that finance the land expense or other permit-related costs at the early stages of development projects.
The investment amount for each business site of this REIT is between 50 billion and 100 billion won, totaling 1 trillion won. Last year, approximately 10 trillion won in new bridge loan transactions were recorded. This means that support is provided at about 10% of the total bridge loans. The government plans to recover the investment once the development project transitions to the main PF phase.
A Ministry of Land official noted, 'This is to support projects that, despite being strong developers, are unable to progress due to the tightening of the PF market in the earliest phase, the bridge loan.' He explained that 'the government's support enhances project stability and makes additional borrowing easier.'
This support is aimed at expanding housing supply and stabilizing sale prices. By reducing financial costs at the land acquisition phase, project expenses can decrease. Additionally, securing project stability can accelerate the progress pace. A Ministry official stated, 'Even saving just 5 percentage points in interest could save over 5 billion won, and if projects can be carried out steadily at the bridge loan stage, the chances of moving to the main PF phase will rise, allowing for faster housing supply.'
The development industry also welcomes the support at the bridge loan stage. A representative from a development firm stated, 'It is a challenging situation for funding as the PF management stance in the financial sector continues,' and added, 'Even if funds can be secured, interest rates in the high 10% range are often applied, so we view this government support plan positively.' However, some believe that since the scale of this anchor REIT is 1 trillion won, it may be difficult to revitalize the overall PF business. Assuming support of at least 50 billion won, there will be only 20 eligible business sites.
There are concerns about national budget being injected into private development projects that should be decided on the market's assessment of project viability. If successful, developers may benefit from running the projects without their own capital. Conversely, if the business sites where national funds are injected do not transition to the main PF phase, the government would bear the project risks that the private developers should handle, raising issues of 'moral hazard.'
In response to this, the government stated that it would selectively consider business sites receiving national funds based on their economic impact, public nature (rental housing), and stability. In particular, they plan to prioritize selecting developers who have secured a certain level of their own capital to ensure project stability.
A Ministry of Land official commented, '(Without their own capital), there are concerns about potential budget losses, so it is expected that developers must have a certain level of their own funds.' He added, 'We are considering the level of self-capital of developers to prevent moral hazard.'
The Ministry of Land plans to provide special guarantees for PF to small construction companies after the bridge loan phase. It will establish a dedicated PF loan guarantee product tailored for construction companies outside the top 100 rankings and the second financial sector. By injecting 200 billion won in housing funds, it aims to provide guarantees amounting to 2 trillion won by 2027. Since this is a product aimed at supporting small construction companies, the evaluation weight for construction companies will be reduced. Instead, the assessment weight for project viability will be increased to selectively support strong business sites.