Government Considers Public Guarantee for Additional Relocation Loans in Maintenance Projects

HF to Guarantee Relocation Loans
Lower Interest Rates and Higher Loan Limits
Easing Loan Restrictions for New Non-Apartment Construction Also Under Discussion

The government is reportedly discussing the creation of a new guarantee product from the Korea Housing Finance Corporation (HF) to support additional relocation loans for redevelopment and reconstruction maintenance projects in the housing supply policy to be announced as early as this week.

A view of apartment complexes in downtown Seoul from the Seoul Sky observation deck at Lotte World Tower in Songpa-gu, Seoul, on the 7th. Photo by Yonhap News

According to the construction industry on August 10, the government is considering various measures to resolve the bottleneck in loans that occurs during the relocation phase of maintenance projects, and is reviewing the inclusion of this guarantee support in the upcoming policy. Previously, relocation loans have been subject to strict regulations as part of the government’s household debt management policy. However, as these relocation loans have been consistently cited as impediments to maintenance projects—a key pillar of urban housing supply—the government is moving toward partial easing of regulations.

Currently, relocation loans for maintenance projects are executed at around 4% annual interest rates, based on public guarantees from the Housing and Urban Guarantee Corporation (HUG), which are similar to commercial bank rates. However, regulations implemented on June 27 and measures taken on October 15 have sharply reduced the loan-to-value ratio (LTV) for housing collateral in regulated areas such as Seoul from 70% to 40%, while the loan limit has been constrained to 200 million to 600 million won. As a result, relocation loans have been directly impacted, leading to a significant reduction in loan amounts and, in some cases, a complete prohibition of loans for multiple homeowners—causing successive shutdowns of projects where relocations could not progress.

Some large construction companies have raised additional relocation funds using their own credit to support project members, but the interest rates applied are relatively high, ranging from 6% to 8% per annum, thereby increasing the financial burden on members. Consequently, the government’s plan is to establish a new HF-backed relocation loan guarantee product with lower interest rates to ease loan constraints. An industry source stated, “Relocation loans are in the nature of project financing. When construction companies borrow at high interest rates, the burden on members increases drastically, so these loans need to be managed separately from general household loans.”

Additionally, there are plans to revise collateral evaluation criteria for relocation loans from ‘pre-demolition former assets’ to ‘post-completion assets.’ This measure would expand the loan limits for redevelopment and reconstruction complexes in areas such as northern Seoul, where the evaluation of former assets has been low, preventing members from securing sufficient relocation funds.

To increase the supply of non-apartment housing, the government may also include plans to lower the borrowing threshold in the additional policy package. Currently, housing rental and sales businesses in regulated areas are limited to an LTV of 0%, with new construction being the only exception, allowing up to 30%. For ‘purchases for demolition purposes’—that is, acquiring existing properties for new construction—even this exception does not apply, making loans completely impossible. Because of this, the industry has recommended that the LTV be raised up to 70% for property acquisitions intended for new construction.

This content was produced with the assistance of AI translation services.