Equity capital ratio for real estate project financing increased from 5% to 20%

[Anchor]

As the controversy over the insolvency of real estate project financing (PF) loans continues, the government has announced improvement measures.

It has been decided to raise the current equity capital ratio of project implementers, which is at a maximum of 5%, to around 20%.

Reporter Choi Kwang-ho reports.

[Report]

Construction at an officetel site in Cheongdam-dong, Seoul, has come to a halt.

This is due to the failure to extend the loan for the initial land purchase costs of the real estate PF project.

[Nearby building official/voice altered: "They bought it for too much money. It was around 350 million to 400 million won per 3.3㎡... It's tough for those who bought it. The PF financial companies that lent the money are also struggling...."]

The PF business structure, which seems to aim for large profits with low capital, has been pointed out as a problem.

The equity capital ratio of project implementers in South Korea's real estate PF business is at 3 to 5%.

Since most of the costs, such as land purchase and construction costs, are financed through PF loans, it is possible to run a project worth 10 billion won with just 300 million won.

In fact, 95% of domestic project implementers last year had revenue of less than 10 billion won.

In contrast, in countries like the United States and Japan, they first purchase land with a equity capital ratio of 30-40% before receiving PF loans.

[Choi Sang-mok/Vice Minister of Economy: "To raise the equity capital ratio of PF projects to a level similar to that of advanced countries in the medium to long term...."]

Various incentives have been proposed to increase the equity capital ratio.

Landowners who contribute land in kind will be encouraged to participate in the project by deferring the taxation on capital gains.

Project implementers with a high equity-capital ratio will also receive benefits such as discounts on PF guarantee fees.

[Lee Eun-hyung/Researcher at the Construction Policy Research Institute: "There have been issues with projects that borrowed excessively, which have become 'vulnerable projects.' We will prioritize support for projects with a solid PF structure...."]

The total size of real estate PF in South Korea is 230 trillion won.

The government plans to raise the equity capital ratio of real estate PF to 20% by 2028.

This is KBS News, Choi Kwang-ho.