[특집] Ministry of Land, Infrastructure and Transport announces ‘Real Estate PF Capital Ratio System Improvement Plan’: Jeongpil Jeongpil

The Ministry of Land, Infrastructure and Transport announced the ‘Real Estate PF System Improvement Plan’ and provided tax benefits for in-kind investments as well as real estate PF. While loans are provided based on objective evaluations such as business feasibility with the expectation of stabilizing the business to the level of advanced countries and capital ratio, the government currently provides loans of 3 to 5 percent by nurturing professional developers and establishing a certification system. Real estate project financing (PF) of only % level It was decided to provide tax benefits to increase the business’s capital ratio to over 20%, which is the level of developed countries.

In addition, the business performance and stability of the PF business will be objectively evaluated before lending is made. To this end, we plan to establish PF business feasibility evaluation standards and procedures and train professional evaluation agencies. The government held an economic-related ministerial meeting on the 14th and announced a ‘real estate PF system improvement plan’ to increase the stability of PF projects and revitalize housing supply. PF (Project Financing) is a financial technique that raises funds based on the future cash flow (profitability) of the target business.

The government has prepared this plan through research services (KDI) and over 50 meetings of on-site opinion gathering in various fields such as experts, implementation, construction, and finance. Choi Sang-mok, Deputy Prime Minister and Ministry of Strategy and Finance In his opening remarks, the Minister said, “In addition to responding to changes in external conditions, “We have decided to thoroughly manage potential risks in the internal sector,” he said. “In particular, we will encourage an orderly soft landing of real estate PF, while ensuring stability in the PF market through institutional improvement.” “We will raise it fundamentally,” he emphasized.

In addition, “In order to improve the equity capital ratio of PF projects to 20%, similar to that of developed countries in the mid- to long-term, land investment in kind is being promoted by providing tax benefits.” induce We analyze the statement that “we will strengthen incentives for projects with high equity capital ratios.”

Laying the foundation for stable level of equity capital expansion>

First, the government decided to establish a stable business structure through in-kind investment. In order to increase the PF equity capital ratio, land owners are encouraged to make in-kind investments (participation as shareholders) in land and buildings rather than purchasing land through high-interest loans. To this end, when investing in kind in a PF business (REITs), taxation and payment deferral of capital gains is applied considering the timing of profit realization by the investor. In addition, in order to revitalize development through investment in kind, candidate sites for leading projects were invited to a public contest, and the final candidate site was a landmark that incorporated a spatial innovation zone with greatly relaxed development regulations. With the goal of creating We provide business plan consulting.

The goal is to present an advanced country-type development model that combines investors, stable development tools, excellent developers, and urban regulation innovation, and to support landowners’ decision-making. For this purpose, public institutions such as the Real Estate Institute provide consulting services such as support for REIT establishment and business feasibility analysis. In addition, when landowners make in-kind investments in the promotion of policy projects, business feasibility is supplemented through LH purchase commitments, and public institutions participate as developers and AMCs (asset management companies). As a result, the equity capital ratio is raised to the 20-40% level and there is no need to take out a bridge loan, thereby lowering the sales price by reducing project costs, improving business stability, and eliminating idle land. (rental) housing, promotion of investment in new industries and national investment Expanding opportunities is expected.

The government then supports capital expansion through incentives. Development projects managed and operated by the developer with a high equity capital ratio are granted special urban regulations such as relaxation of floor area ratio and public contribution, and business sites with low guarantee risk due to high equity capital ratio are granted. PF guarantee fee is discounted. In addition, plans are also being prepared for banks and insurance companies to engage in the long-term rental housing business through various methods such as subsidiary ownership and indirect investment (funds, etc.). The government also encourages capital expansion through strengthening risk management. When making a PF loan, the risk weight and provisions are differentiated based on a certain level of the PF business’s capital ratio, and mutual financing and provisioning that lack a risk management system are provided. Still, Saemaeul Geumgo, etc. We are considering introducing requirements for the ratio of capital to operating expenses, similar to the savings banking industry.

Establishment of fair order in the real estate PF market>

First, the government strengthens business evaluation when making PF loans. Improvements will be made to objectively evaluate the business feasibility and stability of the PF project rather than the collateral or credit of the developer or construction company before lending. In addition, standards and procedures for PF business evaluation, such as fee principles, are established, certification of professional evaluation agencies that conduct objective evaluations, and business feasibility evaluation by evaluation agencies are mandatory when making loans. The government then improves unreasonable practices. To this end, a task force for improving responsible construction, consisting of the Ministry of Land, Infrastructure and Transport, financial authorities, implementation, construction, financial industry, and experts, is operated to ensure responsible completion. ) Prepare improvement plans.

Also. In order to improve the transparency of PF fees, improvement plans will be prepared and implemented through the PF fee improvement task force, in which the financial and construction industries and experts participate. Additionally, a PF integrated information system will be established. Establish a ‘PF integrated information system’ to continuously monitor the progress and financial status of PF projects by type, region, and stage, and conduct land sales from the project start stage. Status of licenses and licenses, We regularly accumulate status information across all stages of each business site, including financing (financial structure) and sales rates.

In addition, the overall PF situation being implemented in the country is monitored and disclosed through individual business information and regional business status management. Developers determine the supply situation and financial companies conduct loan screening during loan screening. Risk diagnosis: The government monitors the possibility of PF insolvency and responds preemptively. At the same time, the government is strengthening the land trust of real estate trust companies. Strengthen trust company PF risk management by standardizing the scope and standards of land trust responsibilities and improving sound management standards.

Cultivating competent Korean-style developers>

First, the government fosters developers who can develop and operate through REITs. We provide REITs with stable equity capital with priority rights to purchase public housing land in excellent locations to ensure stable development and operation. In addition, prime land will be supplied to REITs to encourage the development of landmark commercial facilities in the region and specialized development such as healthcare REITs. This will encourage the nurturing of professional developers who have accumulated operational know-how, and in the mid- to long-term, advance the real estate production structure from sales to development and operation.

The government will then activate the participation of institutional investors in real estate development trusts. We are considering allowing institutional investors to invest up to a certain portion (15%) of the project cost (excluding land cost) in land trust projects. In addition, trust companies that meet sufficient requirements, such as equity capital and internal control, are able to smoothly raise funds through investment from institutional investors. In addition, the government is establishing an excellent developer certification system. We will introduce an implementation capability evaluation system through verification of implementation performance so that excellent implementers can be properly evaluated and fostered. In addition, evaluation indicators appropriate for the implementation field are established, companies with expertise are designated as implementation capability evaluation agencies, and evaluation results (rankings for each company) are announced.

Expected Effect>

As the investment-in-kind method is established in PF projects, incentives such as special urban regulations and preferential supply of residential land are activated for projects with high capital ratios, and capital investment by financial companies expands, the equity capital ratio (self-capital ratio) increases. is expected to increase and financial costs are expected to fall. In addition, it will be possible to diagnose risks in advance and promote quality projects through the PF integrated information system and business feasibility evaluation by specialized organizations. In addition, the practice of relying on third-party guarantees is reduced, PF risks are distributed in a balanced manner among PF business participants such as developers, construction companies, and financial companies, and PF fees and guarantee costs are also reasonable. ), making it possible to reduce costs. In addition, if in-kind investments in idle land are activated, it is expected that the real estate development market will be revitalized and housing supply conditions will be improved, and the size of loans for land purchases will increase during in-kind investments. is reduced, reducing project costs and A subsequent price reduction effect is also expected.

**Considering ‌the ​long-term vision of a “development⁤ and operation” model, how⁣ might the government ensure that this shift benefits not ‍only developers and investors but also promotes‍ affordable housing options and community welfare?**

##⁣ Open-Ended Discussion Questions Based on the Article:

This article lays out a government‍ plan to improve South Korea’s real ‌estate project financing​ (PF) system. ⁤ Here are some open-ended questions to dissect this plan:

**Overall Impact and Goals:**

1. ⁢ **The article emphasizes raising equity capital ratios. What are the potential‌ benefits and risks ⁤of this⁣ strategy for the real estate ‌market?**

2. **How⁢ might this plan ⁣affect different stakeholders: ​developers, ​financial institutions, homeowners, ⁤and the government itself?**

3. **The government aims to balance‍ risk management with incentivizing investment. How ‍effective do you ‍think these ​measures will ⁣be in achieving that​ balance?**

**Specific Policy Initiatives:**

4. **In-kind investment is presented as a key solution. What are⁢ the potential challenges and ⁢limitations ⁤of this approach? How can⁢ the government encourage wider adoption?**

5. ⁣**The article⁤ highlights the ‍need for “competent Korean-style developers.” What characteristics​ and ⁣skills should ⁢these developers possess to⁢ thrive in this new environment?**

6. **The plan ⁤calls for increased transparency ⁣through a PF integrated information system. How can this system​ best be designed to ensure ⁢accuracy, accessibility, and usefulness for all stakeholders?**

**Long-Term Vision:**

7. **The⁤ article mentions moving‌ towards a “development and operation” model. What ⁣are ⁤the implications of this shift for the real estate industry and for the urban‍ landscape?**

8. ‍ **How will this plan contribute to the government’s broader goals of ‌economic ⁣stability, housing affordability,⁢ and urban development?**

9. **What unintended consequences might arise from these policy changes? How can the government anticipate and address⁤ them?**

**Thematic Sections:**

*‍ **Financial ‌Stability and Risk Management:**

* **Encouraging Responsible ​Development:**

* **Promoting⁣ Investment and Innovation:**

* **Technological Integration (PF Integrated Information System):**

* **Impact on Housing Affordability:**

This framework provides a starting point ⁣for a nuanced ‌and ​insightful⁢ discussion about the future of ‍real estate PF in ⁣South Korea.

Remember to encourage participants ‌to share ‍diverse perspectives,‌ challenge assumptions,‌ and envision potential solutions.