As the Korea Land & Housing Corporation (LH) moves to directly implement projects in earnest, construction companies participating in private-participation public housing projects will receive public guarantees for up to 80% of project costs when raising construction funds. For "Newlywed Hope Town" or business sites where the main subscription is delayed, the guarantee limit rises to as much as 90%. More than 80,000 public housing units will benefit, and the total guarantee size is close to 11 trillion won.
In private-participation public housing projects that use a direct settlement method, construction companies must first raise construction funds to proceed with the project, and public guarantees are provided at this stage to lower the threshold for financing. With the establishment of a project cost guarantee framework, the supply of public housing is expected to pick up speed.
According to the Ministry of Land, Infrastructure and Transport and the Korea Housing & Urban Guarantee Corporation (HUG) on the 17th, HUG recently drew up interim rules for project cost guarantees for private-participation public housing projects. For general-type and sharing-type dwellings supplied through private participation, the guarantee limit was set at up to 80%. For "Newlywed Hope Town" or business sites with delayed main subscriptions, the limit was exceptionally set at up to 90%. The annual guarantee fee rate is 0.324%.
A HUG official said, "We are currently proceeding with the rule revision process, and the guarantee limit and fee rate will be finalized after internal procedures such as a board meeting."
The proposed rules are expected to take effect in late June to early July after a board resolution, and, in the case of the guarantee fee rate, after approval by the Minister of the Ministry of Land, Infrastructure and Transport.
Under the Sept. 7 supply measures last year, LH is moving in earnest to directly implement projects without selling its land reserves, while private construction companies build public housing under private-participation public housing projects.
In private-participation public housing projects conducted on a contract basis (direct settlement method), construction companies pre-finance construction costs and then settle the costs with LH after completing the public housing. Profits and losses from the dwellings project accrue to LH.
Because construction companies must first raise construction funds and carry out the building work, they may face difficulties at the financing stage. Large construction companies with strong credit can borrow at low interest, but those without such credit may struggle to raise project funds even after winning a bid. Accordingly, HUG has continued consultations with LH until recently on project cost guarantees for private-participation projects.
HUG's public guarantees are expected to lower the financing threshold for construction companies' project costs. If HUG guarantees up to 80%–90% of project costs, lenders can significantly reduce default risk, thereby lowering project financing risk. Construction companies can not only secure funding more easily but also expect lower interest rates.
HUG's dedicated guarantee product for private-participation public housing projects covers public housing totaling 84,000 units scheduled for sale through 2030. The corresponding guarantee amount is 10.8 trillion won.
With these guarantee rules in place, the government's public housing supply is expected to accelerate significantly. The Ministry of Land, Infrastructure and Transport is currently proceeding with private-participation public housing projects for the development of idle urban land, including the Sungkyunkwan University baseball field and Wirye office sites.