"PF Regulations Open Up Annual 45 Trillion Won Private Debt Market for Real Estate"

IGIS Asset Management Publishes Strategic Research Report
Tighter PF Regulations and High Interest Rates Constrain Financial Institution Lending
Private Debt Opportunities in Commercial Real Estate Expected to Expand

As regulations on real estate project financing (PF) have tightened, analysts say that the domestic private debt market targeting commercial real estate (CRE) is seizing an opportunity for structural growth. As various regulations and risk management measures have reduced securities companies' exposure to PF, the demand for funding via private equity funds (PEFs) is rising, and the market is projected to open at an annual scale of between 31 trillion and 45 trillion won.

On June 19, the Strategic Research Office of IGIS Asset Management published a report titled "Investment Opportunities in the Private Debt Market and Real Estate Debt Funds," highlighting these findings.

According to the report, the global private debt market was estimated to be worth about $2.2 trillion (approximately 3,364 trillion won) as of the third quarter of last year. It has grown more than fivefold over the past 15 years.

The private debt market began to expand in the United States after the 2008 global financial crisis, as regulations such as the Dodd-Frank Act tightened bank lending standards. Banks were restricted to accepting only certain types of collateral, such as real estate, movable property, deposits, and bonds—assets considered secure. As a result, companies with credit ratings below certain thresholds were unable to secure loans. In this situation, institutional investors, facing a prolonged low-interest-rate environment, began to focus their attention on the private debt market, which offered stable and mid-to-high returns.

The report forecasts that a similar environment is emerging in the Korean market. It analyzes that productive financial policies by the government, real estate loan regulations, delays in interest rate cuts, and rising construction costs have all weakened PF business viability, thereby limiting financial institutions' capacity to supply loans.

The report particularly anticipates opportunities in the commercial real estate (CRE) market. As of last year, the total assets of real estate funds and REITs amounted to 620 trillion won, with an average increase of 43 trillion won per year over the past three years.

Within this trend, refinancing demand is rising, but as supply from the banking sector remains constrained, CRE debt funds are expected to see annual investment opportunities ranging from 31 trillion to a maximum of 45 trillion won. Specifically, the report estimates that refinancing will account for between 10 trillion and 21 trillion won, new CRE loans will reach between 2.2 trillion and 4.3 trillion won, and new PF loans for commercial real estate will total approximately 19.5 trillion won.

The report states, "With a contraction in bank lending anticipated, and considering factors such as interest rates, regulations, and demand, this year and next year present the optimal window for private debt funds to enter the market. It is important to secure quality borrowers and assets in advance to establish market leadership before competition intensifies."

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