Low-interest loans to businesses building rental housing
The number of business owners who are unable to repay principal and interest on time is rapidly increasing.
Loss of term profit: KRW 450 billion over 2 years
Concerns are growing about the insolvency of business loans from the Housing and Urban Fund, which is used to help ordinary people buy houses and supply rental housing. The amount of profit loss on term (EOD, early recovery of loan) due to business owners who borrowed money from the Housing and Urban Fund to build rental housing failed to repay the principal and interest on time has surged to around 450 billion won over the past two years and six months.
According to data submitted by the Ministry of Land, Infrastructure and Transport to Moon Jin-seok, a member of the National Assembly’s Land, Infrastructure and Transport Committee, the loss of term profits from the Housing and Urban Fund from 2022 to June of this year occurred in the amount of KRW 574.6 billion. Among these, business loans received by housing business owners amounted to KRW 456.5 billion, accounting for 79% of the total, and the loss of term profits from home purchase and lease loans amounted to KRW 118.2 billion.
The Housing and Urban Fund is created from subscription savings payments and sales of national housing bonds purchased at the time of building permits and real estate transfer registration. The money saved in this way is lent at a low interest rate to housing business operators who build rental houses, and is also used as a source of finance for stepping stone and support loans and special loans for newborns.
The increase in the loss of term profits on business loans means that housing businesses are not properly repaying the money after borrowing money from the fund to build public or private rental housing.
The loss of term profits on business loans increased four-fold from a total of KRW 113.6 billion over the two years of 2020 (KRW 101.4 billion) to 2021 (KRW 12.2 billion) to KRW 454.8 billion in 2022 (KRW 241.1 billion) to 2023 (KRW 213.7 billion).
This is the aftermath of a crisis, with local small and medium-sized construction companies entering court receivership one after another due to the decline in the housing economy and rising interest rates.
The loss of term profit in the first half of this year amounted to 1.7 billion won.
The problem is that the recovery rate for loans with lost profits over the term is only 39.4% (2022-June 2024), and loans that are not recovered may end up being a loss for the Housing and Urban Fund.
In fact, when Nammyeong Industrial Development, located in Gyeongnam, went into court receivership, KRW 112.3 billion was recorded as loss of term profit in December last year, but not a single penny has yet been recovered. Earth Construction had a loss of term profit of 98.9 billion won in July 2022, but only 1.4 billion won has been recovered so far.
To recover the loan, an auction or public auction must be held, but since the auction is postponed to protect the housing rights and conversion rights of tenants living in rental houses built by housing business operators who have failed to repay the loan, it is expected to take a considerable amount of time to recover.
Representative Moon Jin-seok said, “Recently, the Ministry of Land, Infrastructure and Transport has begun to reduce stepping stone loans, citing concerns about the depletion of the Housing and Urban Fund fund. If we want to discuss the financial soundness of the fund, we should first look back at the operation of the Housing and Urban Fund, including poor management of business loans, rather than reducing housing purchases and leasehold loans for low-income people.” “It does,” he pointed out.
