As fears of insolvency in real estate project financing (PF) loans in the financial sector spread, the sense of crisis of delay or suspension of construction is increasing.
Tensions are spreading in the construction and finance industries as the real estate market has cooled rapidly and Daewoo E&C has even given up construction rights due to concerns regarding high interest rates and unsold sales.
According to data submitted by the Office of the People’s Power Member Chang-Hyun Yoon from the Financial Supervisory Service on the 12th, the balance of overdue real estate PF loans in all financial sectors (excluding credit card companies) was tallied at 1,146.5 billion won as of the end of September last year. Compared to the end of 2021 (483.8 billion won), it has more than doubled in one year. Loan delinquency balance is one of the main indicators that financial authorities look at to gauge the future trend of insolvency.
While the Financial Supervisory Service draws the line as excessive concern, saying that the scale of PF loan delinquencies is still within a manageable range, it sets preventing real estate instability from spreading to the financial market as a major task this year and is keeping a close eye on it.
Recently, a situation occurred in which Daewoo E&C repaid the subordinated loan guarantee (bridge loan) of 44 billion won for a residential-commercial development project in Dong-gu, Ulsan with its own funds and gave up the construction right. It decided to withdraw from the business following judging that the business value had declined as the interest rate on loans had risen. If construction companies give up construction rights and the bridge loan business site is not transferred to the main PF, financial companies that financed the business might be hit hard.
According to the recent analysis of construction company management conditions by the Construction Association of Korea, 32 (13.9%) of 231 PF sites in which association member companies are participating in construction have confirmed that construction has been delayed or suspended. Disruption in material supply and demand (35.0%) was the most common reason, but difficulties in financing such as non-execution of PF (30.0%) also accounted for the second largest share.
A sense of crisis is growing in the local real estate industry.
A person in the local real estate industry said, “Recently, a construction company returned the site in Yeongjong Sky City, Incheon, which it purchased from the Korea Land and Housing Corporation (LH) while giving up the down payment, and the case of Daewoo E&C is similar.” The lower it is, the higher the feeling may be,” he said.
Regarding the insolvency of real estate project financing (PF), Deputy Prime Minister and Minister of Strategy and Finance Choo Kyung-ho said, “In the big picture, when problems arise at individual workplaces and are dealt with, the industry must make efforts on its own, and the government cannot accept and support them one by one.” At the same time, he said, “If there is a liquidity risk even though it is a normal business place because the market sentiment has shrunk, we will respond by solving it with various programs.”
Reporter Lee Sang-moon ubot1357@
Joongdo Ilbo (www.joongdo.co.kr), unauthorized reproduction, collection, and redistribution prohibited
