Financial authorities to reevaluate from next month,
Experts suggest “strengthening loss-response capability”
Financial authorities have decided to conduct a reevaluation of real estate project financing (PF) businesses in around 5,000 locations nationwide starting next month, raising concerns about potential additional losses in the second financial sector due to increased reserves. Market experts on the 20th stated that the possibility of a widespread deterioration in the second financial sector is low.
At the ‘Real Estate PF Market Trends Review Meeting’ held by the Financial Services Commission and the Financial Supervisory Service at the government’s Seoul headquarters on this day, market experts mentioned that “the loss-response capability in the second financial sector has improved compared to the past.” If the new evaluation standards for real estate PF businesses imposed by the authorities are applied, businesses with concerns of insolvency will need to set aside 75% as reserves. Previously, businesses facing deterioration concerns had to reserve 30% of the loan amount as reserves. Therefore, there are low expectations for the spread of insolvency in the second financial sector with a high proportion of bridge loans due to the improved soundness indicators. However, experts advised that monitoring of companies with high-risk real estate PF exposure would be necessary as some of them may have to recognize losses due to the restructuring and resolution of real estate PF projects. The review meeting was organized to listen to expert opinions regarding the ‘Real Estate PF Normalization Plan’ announced by financial authorities on the 13th. Market experts anticipated that following the announcement of the PF landing strategy, bond markets and others have remained stable without signs of anxiety, and dividing normal businesses from those requiring restructuring or resolution would reduce concerns about the decrease in real estate approvals and commencements, positively impacting future real estate supply. They emphasized the importance of paying attention to the speed and scope in promoting future PF normalization efforts and suggested maintaining balance in the detailed policy implementation process, conducting step-by-step business evaluations, and taking complementary measures for financial and construction companies to minimize market shocks. They also stressed the need to simultaneously reinforce construction investment and resolve unsold housing stock to promote recovery in the construction industry for the effective implementation of real estate PF landing strategies.