Suspension of independent bank PF loans… Development business crisis

The housing development business is being pushed into a series of debilitating crises as financial institutions all at once reduce real estate project financing (PF) loans. A residential site for an office development in Dongdaemun-gu, Seoul, where the start of construction was delayed for several years due to financial problems, and then restarted after a change of business operator. / Reporter Huh Moon-chan

The housing development project finance (PF) market is rapidly freezing. Commercial banks effectively stop PF loans, and the second financial sector demands a very high interest rate of at least 10-20% per annum as a condition of extending the loan. Even the large-scale redevelopment project of around 3,000 households in the metropolitan area has been pushed to the brink of suspension because it failed to raise money. As PF loans, the core of the housing development project, face a series of dilapidated crises, the government’s housing supply measures, which are planned for 500,000 households a year, will inevitably be disrupted.

According to the financial property and real estate development industry on the 21st, it was confirmed that the four major commercial banks, including Kookmin, Shinhan, Woori, and Hana Bank, have almost stopped reviewing PF loans. The real estate development industry said, “There were very few cases of PF loans from the first financial sector in the second half of this year.” A commercial bank official said, “It is right to revise the PF loan conservatively.”

The first financial sector is guilty of PF loans The second financial sector, such as securities companies and capital companies, demand high interest rates of 10-20% per annum as conditions for new loans and extensions. Some even respond that it is better to stop the construction work than to get a loan at that interest.

Developer A, who is preparing to supply 3,200 apartments in a new city in the southern region of Gyeonggi Province, said, “I applied for a bridge loan extension (an early real estate development loan) to a savings bank, and when the maturity was extended. , the interest rate was 20% per annum.” .

The rapid cooling of the real estate market following a steep rise in interest rates is a direct blow to PF loans. According to the Financial Supervisory Service, the average interest rate on real estate PF loans from securities companies, which was 5.7% in March this year, has more than doubled since June. A representative of a developer company in Seoul said, “In March, I got a loan of 5% per annum, but in June I was going to start a new business in another business site, so I asked for 10%. He’s back,” he said.

Financial institutions, which had been offering PF loans competitively until last year, have recently tightened their funding lines as concerns about insolvency increased. According to the Korea Asset Management Corporation, in July and August this year, the number of short land sale auctions by trust companies was 341, up 54.3% from the same period last year (221). An industry official said, “The situation could disrupt the general housing supply.”

PF interest rate 10% p.a., 20% when extended… “Loans are over”, quit housing business one after another
The PF market, where money is tight … Housing supply this year ‘red light’

Recently, representative A of the developer, who is developing a 500-room office in Yeongdeungpo-gu, Seoul, received a call from a savings bank saying that it could not provide a loan due to a change in internal regulations. “A month ago, a project financing (PF) loan worth 365 billion won was approved,” said CEO A. He complained, “I’m running all over the place, but it’s not easy to secure money.”

The real estate development market is appreciating the tightening of PF loans in the financial sector. The financial sector, which had been providing PF loans competitively until last year, has suddenly tightened funding lines from the second half of the year, causing great confusion in the market. Things unheard of until last year are happening, such as refusing to review loans, raising interest rates significantly, and asking for partial repayments when extending loans. An official from the development industry said, “Even considering the rapid increase in interest rates, I cannot understand it.

Financial companies “PF that used to be money is now the biggest risk”

[단독]    Banks freeze PF loans... 'major crisis' development project

According to the ‘National Housing Start Trend’ data received by the Ministry of Land, Infrastructure and Transport from Kim Jeong-jae, a member of the National Assembly’s Land, Infrastructure and Transport Committee, on the 21st, the construction of 583,737 houses started last year, but this year (by July), 223,082 building starts were recorded, ending at The number of unsold homes more than doubled from 14,864 households to 31,284 households during the same period.

In the fast-frozen real estate market, financial institutions are withdrawing from PF loans one after the other. An official from a commercial bank said, “The guidelines of the financial authorities are to thoroughly manage the ratio of equity to total assets by the end of the year, but it is difficult to find a PF loan, which costs tens to hundreds of billions of money earned per loan.”

It seems that securities companies and savings banks, which have been aggressively giving out PF loans, are also committed to self-defense. An executive officer in charge of PF at Securities D said, “The business viability of the PF lending business is seriously deteriorating due to a surge in construction costs due to the increase in raw material prices.

The delinquency rate of PF loans from securities companies in the first quarter of this year was 4.9%, which is significantly higher than 1.3% in the same period in 2019. “Unlike last year, the challenge this year is not to be exposed to risks,” said an executive at a securities firm.

“High quality businesses need PF loans”

Real estate development is being pushed into a chain-link crisis due to a lack of funds. Representative B of a real estate developer who bought land for a 900-family apartment in Uijeongbu-si, Gyeonggi-do, was surprised when he went to apply for a loan extension recently. The bank demanded 20% per annum as extension interest on the short-term ‘Bridge Loan’, which was borrowed as an initial fund for development projects such as land purchase funds. “The 20% interest rate is almost telling you to close the business,” he said.

Stopping PF loans, regardless of quality and non-premium, could lead to a chain reaction that goes beyond a stalled development project and leads to PF insolvency in the financial sector and disruption of supply houses. Some are concerned that land that cannot be converted into PF loans when it matures after implementing a bridging loan for land purchase may be split into non-performing loans (NPLs). An official from a top domestic developer company with financial power said, “Now is not the time to do a development project because it is too much.” “If you are holding live bullets and the real estate comes out at a low price after the end of the period. a year, then you can buy it cheap and build the building to maximize your profit.” He said.

Experts believe that the government’s real estate policy, which aims to stabilize the market by supplying 500,000 homes a year, will be disrupted if the PF loan ‘money environment’ worsens. This is because development projects through real estate PF usually come out in the market with a delay of 2-3 years. An industry insider pointed out, “We need to open the door for new PF loans to high-quality business sites through screening to prevent a sudden supply crunch in the future.”

Jong-pil Reporter Park jp@hankyung.com

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