As the slowdown in the real estate economy drags on, the real estate trust industry is taking a direct hit. Credit rating firms noted that profitability in the real estate trust industry is unlikely to recover next year, raising the prospect that credit ratings could fall in the short to mid term.
According to the industry on the 10th, NICE Investors Service assessed in its "2026 industry outlook" report that next year's earnings outlook for real estate trust companies is "maintain" compared with this year, while the credit rating direction is "negative." Risks related to business sites with completion guarantees remain, and a prolonged slump in the real estate market is slowing the recovery in results. In other words, it forecast that next year's results will not improve or deteriorate significantly compared with this year, and that the likelihood of a credit rating downgrade within one to two years is high.
In fact, the real estate trust industry has continued to post a net loss of 186.0 billion won on a cumulative basis through the third quarter of this year. Return on assets (ROA) was minus (-) 2.3%. As the operating environment centered on land trusts deteriorated, fee revenue declined, while credit loss expenses continued to arise in connection with compliance with completion guarantee obligations.
Trust accounts funded by trust companies' own capital surged from 2.2 trillion won in 2020 to 8.8 trillion won this year. As the sales rate at land trust business sites failed to recover, especially in nonmetropolitan areas, trust accounts for loan-type land trusts increased, and insufficient funds were raised through trust accounts to fulfill completion guarantee obligations. Provisions were also increased in preparation for potential damages related to project financing (PF) principal and interest, and the scale of trust companies' interest-bearing liabilities expanded due to rising funding needs.
Accordingly, NICE Investors Service cited remaining risks related to business sites with completion guarantees and the pace of recovery by company as key monitoring factors for trust companies next year. Senior researcher Yun Jae-seong said, "As of the end of last month, six damages lawsuits were filed over failure to fulfill completion guarantee obligations, indicating the situation has not stabilized," adding, "In the short term, expense increases from setting provisions and liquidity burdens from principal and interest payments on loans, and in the mid to long term, the final loss that may occur during the disposal of trust property are expected to weigh on the financial stability of trust companies."
Yun added, "Risks remain regarding the performance of completion guarantee obligations and PF principal and interest compensation issues, but much of this risk has already been reflected this year through credit loss expenses and the accumulation of provisions, so the possibility that next year's results will deteriorate compared with this year is limited." Still, he said, "The recovery of the real estate market is likely to diverge by region and use, so profitability recovery will likely remain limited."
Korea Ratings also expressed concern in its report "Real estate trust industry 2025 Q3 preliminary results review and monitoring plan" that the land trust institutional sector, which had been the revenue base, is weakening. Although the land trust market has shrunk to pre-2017 levels, the number of trust companies has increased from 11 to 14, intensifying competition. As a result, land trust fees in the third quarter of this year were 124.8 billion won, down about 19% from a year earlier.
Amid this situation, the financial structures of individual trust companies are also worsening. As of September this year, six of the 14 trust companies had debt ratios exceeding 100%. In particular, five companies — Daehan Land Trust, Mugunghwa Trust, Shinhan Asset Trust, KB Real Estate Trust, and Korea Investment Real Estate Trust — were above 150%.
Wi Ji-won, head of Financial Division 1 at Korea Ratings, emphasized, "The key is to improve the financial structure by recovering trust accounts." Wi said, "To this end, specific efforts are needed to clean up long-term unsold business sites, such as negotiating with developers or deciding internally to recognize losses and proceeding with discounted sales," adding, "Given that a recovery in orders is difficult in the short term due to the downturn in the real estate economy, it is important to secure stable income sources through business diversification, such as real estate investment trusts (REITs)."