The Seoul city government said housing supply is at risk of delays as most housing redevelopment projects in Seoul are running into setbacks in securing relocation loans after government real estate loan regulations choked off lending. A local government openly criticized problems with the central government's loan curbs head-on.
Seoul said at a briefing on the afternoon of the 27th that a survey of 43 redevelopment zones set for relocation this year found that 39, or about 91% of the total, are experiencing setbacks in securing relocation funds due to the government's loan regulation policy. At the briefing, the city released findings from 20 rounds of damage assessments conducted over seven months since July last year.
Following the government's June 27 plan to tighten household debt management and the Oct. 15 housing market stabilization measures, current redevelopment projects are subject to rules of a 40% loan-to-value (LTV) ratio for owners of one dwelling, 0% LTV for owners of multiple dwellings, and a loan limit of 600 million won.
According to the Seoul city government, of the 43 those surveyed, 39 are affected by the regulations, excluding three that are not subject to the loan curbs (projects that completed management and disposal approval before the effective date) and one Moa Housing site that received approval for a relocation loan from the Korea Housing & Urban Guarantee Corporation (HUG).
Of these, 24 are redevelopment and reconstruction sites (about 26,000 units), and 15 are small-scale housing maintenance projects such as Moa Housing (about 4,000 units). The Seoul city government assessed that supply of a total of 31,000 units is poised to be delayed. The city said, "By next year, 66 business sites will see relocations affected by the loan regulations, with total supply reaching 56,000 units."
Due to the loan curbs, associations are short of relocation funds and are considering additional borrowing from secondary financial institutions with construction company guarantees, but the city explained that the heavy interest expense burden from high interest rates is unavoidable.
In particular, funding conditions are becoming more polarized depending on project area, scale, and the construction company. Large-scale redevelopment business sites in the Gangnam area can raise additional relocation funds through major builders even if the interest rate is about 1–2 percentage points higher than the base relocation loan rate. But small and mid-sized projects must accept high interest rates that are 3–4 percentage points or more above the base rate.
The Seoul city government said, "Not only is the financial burden on association members increasing, but the time required to negotiate funding and carry out procedures is considerable, spreading negative effects across the board, including project delays and higher project costs."
In practice, Moa Housing, a small-scale housing maintenance project involving a mid-tier builder, is struggling at the final hurdle, the "relocation" stage. In the Myeonmok-dong A Moa Town initiative area in Jungnang District, there are 811 members across four associations, consisting of 515 owners of one dwelling (LTV 40%) and 296 owners of two or more dwellings (LTV 0%). The project is facing difficulties after the construction company notified the associations that it cannot provide a payment guarantee, citing concerns such as a potential credit rating downgrade.
Not only Moa Housing but also general projects are struggling due to the loan curbs. In one redevelopment area, more than 60 association members are multiple-dwelling owners, and the construction company refused to provide a payment guarantee because roughly 13 billion won needed for their relocation could not be raised. As a result, some members asked to switch to cash settlement, and the relocation schedule that had been set for Feb. was postponed.
Choi Jin-seok, head of housing for the Seoul city government, said, "Securing relocation funds is especially urgent, like a fire at our feet," adding, "There is concern that project delays will materialize."
In particular, multiple-dwelling owners subject to a 0% LTV cannot obtain loans for relocation funds. The Seoul city government emphasized, "Our survey includes many multiple-dwelling owners who cannot be regarded as wealthy," adding, "The government needs to create exceptions for multiple-dwelling owners as well."
However, because these are private development projects, the Seoul city government cannot inject budget funds. Choi said, "Redevelopment projects are private undertakings, so it is difficult for the city to present countermeasures," adding, "However, we are monitoring the situation and looking for the city's role."
At a working-level consultative body with the Ministry of Land, Infrastructure and Transport on the 22nd, the Seoul city government asked for reasonable adjustments to the loan rules, such as separating relocation loans from general mortgage loans and applying a 70% LTV. The city also delivered the damage status of 40 redevelopment projects subject to the loan regulations to the ministry that day.
Choi said, "Relocation loans should be recognized not as simple household loans but as essential project expenses for housing supply, and the policy paradigm must be shifted urgently."