Two-Year Deferral of Equity Ratio Requirements for Residential PF Confirmed; Phased Increase Starts in 2029

Financial sector PF exposure at 168.8 trillion won
PF loan balance rises for first time to 115.8 trillion won
Financial-sector funds expanded to 10 trillion won; new 3 trillion won KAMCO fund to be established

Financial authorities will suspend the equity ratio requirements for real estate project financing (PF) at residential development sites for two years to promote housing supply. They plan to step up the restructuring and resolution of troubled sites while strengthening financial support to ensure a steady flow of new funds to viable projects.

On October 13, the Financial Services Commission, the Financial Supervisory Service, the Ministry of Economy and Finance, the Ministry of Land, Infrastructure and Transport, and other relevant agencies held a meeting to review the real estate PF situation. They examined market trends, including PF exposure and delinquency rates, and discussed financial support measures to promote housing supply.

According to the Financial Services Commission, as of the end of June this year, the financial sector's PF exposure, including PF loans, land-backed loans and debt guarantees, stood at 168.8 trillion won, down 1 trillion won from the end of the previous quarter (169.8 trillion won). It has continued to decline from 231.1 trillion won at the end of 2023, but the quarterly decrease has slowed from around 5 trillion won to 1 trillion won.

The outstanding balance of PF loans rose to 115.8 trillion won, marking its first increase since the end of 2023. New PF lending in the second quarter also reached 23.5 trillion won, up 6.7 trillion won from the previous quarter's 16.8 trillion won. Financial authorities said new funds are being provided mainly to sites with sound business prospects and significant progress in development.

The delinquency rate on PF loans fell to 4.56%, down 0.09 percentage points from 4.65% at the end of the previous quarter. Loans classified as having "heightened concern" (C) or "likely to be insolvent" (D) in business viability assessments totaled 15.1 trillion won, a decrease of 1.3 trillion won from 16.4 trillion won at the end of the previous quarter. Their share of total PF exposure also fell by 0.6 percentage points to 9.0%.

Financial authorities said that by the end of June, they had resolved or restructured troubled sites classified as having heightened concern or likely to be insolvent, covering 19.7 trillion won in exposure. Of this total, 14.4 trillion won was resolved and 5.3 trillion won was restructured. However, as the pace of resolution and restructuring has slowed, they plan to continue addressing troubled sites by increasing financial-sector funds from 7.3 trillion won to 10 trillion won and setting up a new 3 trillion won KAMCO fund.

The authorities also finalized measures to implement PF equity ratio requirements to promote housing supply. For residential development sites, the application of related requirements, including those on prudential soundness and provisioning, loan eligibility and risk weights, will be deferred for two years. The required equity ratio will be raised in stages, starting at 5% in 2029 and reaching 20% from 2032 onward.

However, requirements for non-residential development sites, which have relatively higher delinquency rates, will take effect as previously planned, starting in 2027. The regulatory ratio for these sites will also be implemented from 2027.

Financial authorities will assign officials to 279 residential development sites in regulated areas of the Seoul metropolitan region to closely monitor factors delaying projects and difficulties in obtaining financing. The Financial Services Commission said that the PF and Construction Company Financial Difficulties Support Center, operated by the Financial Supervisory Service and the Korea Development Bank, had received 47 cases to date. Of these, 27 had completed consultations and reviews, while 20 had been referred to the relevant agencies.

The authorities also plan to promptly implement follow-up measures to the August 13 real estate package, including expanding PF guarantees from the Korea Housing Finance Corporation and establishing the KAMCO fund. They said they would support housing supply by ensuring a steady flow of new funds to viable projects while accelerating the resolution and restructuring of troubled sites.

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