The Korea Housing & Urban Guarantee Corporation (HUG) appears to have supplied real estate project financing (PF) loan guarantees last year that nearly hit 12 trillion won. It seems to be pouring comprehensive support into easing funding difficulties for dwelling project operators amid the PF market freeze and to spur dwelling supply.
According to the construction industry on the 7th, HUG's PF guarantee approvals last year reached a record 11.633 trillion won (73 business sites). PF guarantee approvals have risen every year, from 1.642 trillion won in 2022 (14 business sites) to 2.983 trillion won in 2023 (19 business sites) and 8.372 trillion won in 2024 (55 business sites). Over three years, approvals grew about sevenfold.
HUG's PF guarantees target dwelling business sites that have secured approvals for project plans such as building permits. PF business sites in the early stages typically raise funds based on the guarantee of the construction contractor, but without the participation of a first-tier constructor, it is difficult to obtain financing from financial institutions. For this reason, HUG guarantees repayment of principal and interest on project costs such as land costs that the developer borrows. The idea is to ease the clogged "money circulation" and lead to expanded dwelling supply.
As part of measures to boost dwelling supply, the government is actively expanding PF guarantee supply. In Oct. 2023, the government introduced special eased PF guarantee requirements and has since extended them. The main points are raising the PF loan guarantee cap to 70% of total project cost from the current 50% and abolishing the previous restriction that required a construction contractor to be ranked within the top 700.
However, growing risks to HUG's soundness and financial safety are a concern. If the real estate market deteriorates, the scale of subrogation payments could increase. In one of HUG's core businesses, the "jeonse deposit return guarantee," subrogation outlays also surged due to a sharp rise in jeonse fraud, leading to losses. HUG posted net losses of 408.7 billion won in 2022, 3.8598 trillion won in 2023, and 2.5198 trillion won in 2024.
Lee Eun-hyeong, a research fellow at the Korea Institute of Construction Policy, said, "The government has consistently maintained a stance of selectively supporting sound PF while inducing swift resolution of distressed PF," and noted, "Of course, as the guarantee volume increases, the financial burden that must be shouldered in the event of incidents can also grow."