On November 14, 2024, the government jointly announced the “Real Estate PF System Improvement Plan” (hereinafter referred to as “Real Estate PF System Improvement Plan” to increase PF stability and revitalize housing supply jointly with related ministries).Improvement plan”) was announced.
The improvement plan is a plan to advance the PF industry structure and includes a system improvement plan for ① improving the capital ratio, ② introducing related evaluation systems, etc., ③ improving responsible completion practices, and ④ inducing a development and operation business structure, etc., through which the ultimate It is understood that the goal is to advance the real estate PF industry structure and foster competent Korean-style developers.
In this newsletter, we will look at the main contents of the improvement plan and its implications.
1. Main contents of improvement plan
go. Improving equity capital ratio: Target to gradually increase to 20% level (10% in 2026, 15% in 27, 20% in 28)
1) Activation of investment in kind, such as land
- Deferral of tax payment on transfer gains: When making in-kind investments in land and buildings to REITs carrying out PF business, the timing of taxation on transfer gains is deferred in consideration of the investor’s profit realization point (time of liquidation of REITs, time of transfer of stocks acquired through in-kind investment, etc.) [25년 내 조세특례제한법 개정 추진]
- Leading project promotion: Opening of candidate sites for leading projects and significant relaxation of development regulations for selected areas
- Administrative support: Support for the establishment of REITs to induce investment in kind, consulting such as business feasibility analysis, and provision of LH purchase confirmation when promoting policy projects such as long-term rental housing, etc.
2) Grant incentives
- Provision of special regulatory provisions: When operators with a high capital ratio perform asset management and operation after development, floor area ratio incentives or public contribution (including donation liability) relief are provided, etc. [25년 상반기 내 부동산개발사업관리법 개정안 발의]
- PF guarantee fee discount: [25년 상반기 내 HUG, HF 내규 개정]
- Allowing banks and insurance companies to participate in the long-term rental housing business: Reviewing various methods, such as owning subsidiaries or making indirect investments through investments in funds or REITs. [25년 내 은행법, 보험법 개정]
3) Strengthening risk management and rationalizing the regulatory system
- Differentiation of risk weight and provisioning standards: The lower the capital ratio of the PF business, the higher the ratio of provisioning to capital is applied, providing incentives to increase the capital ratio.
- Consider introducing requirements for capital to business expenses ratio for mutual finance, still life, and Saemaeul Geumgo, like savings banks: Currently, savings banks can lend only if the developer’s PF business cost to equity capital ratio is 20% or more (mutual savings banking business supervisory regulations) (Refer to Article 22-3, Paragraph 1, No. 1).
- Establishment of separate large credit extension limit regulations for PF in necessary industries: Currently, only large credit extension limit regulations for all loans exist, but large credit extension limit regulations for real estate PF are scheduled to be introduced to industries that require it.
- Revision of PF exposure limit regulations by financial industry: Currently, for securities companies, PF loans and guarantees are limited to 30% and 100% of equity capital, respectively, and for insurance companies, the risk weight is adjusted when the ratio of real estate loans (including PF loans) to total assets exceeds 25%. Increased (in the case of insurance companies, guaranteeing debt for others is prohibited in principle). On the other hand, banks do not have separate regulations specifying the proportion of PF loans, so regulatory standards differ by industry.
[25년 내 금융권 TF 운영, 업권별 감독규정세칙 및 PF리스크 관리 모범규준 개정. 단, 개정 규정 유예기간 및 단계적 시행하며, 시행 전 PF 사업에 소급 적용하지 않음.]
4) Activating institutional investors’ participation in real estate development trusts
- Allowance of financial trusts by institutional investors, etc. in land trust projects: In the case of PF projects in which land and buildings are entrusted to a trust company, pension funds, etc., other than the land trustor, are allowed to place a monetary trust for the trust company within the range of 15% of the PF project cost (excluding land costs). Accept review.
- Currently, real estate trust companies cannot, in principle, entrust money and assets other than real estate, but they can entrust money up to 15% of the project cost only in cases where the purpose is a real estate development project (Article 103, Article 4 of the Capital Markets Act) (see section). However, it is difficult to find cases where the above money trust is used for the purpose of raising funds through equity capital other than borrowing, and there is no basis for institutional investors other than the developer, who is the trustor, to have a money trust under the current law.
- According to the improvement plan, it is expected that the trust company will secure a certain level of equity capital or have internal control standards as requirements for money trusts for institutional investors.
[25년 하반기 내 업계 협의 등 거쳐 허용 방안 마련]
me. Mandatory PF business feasibility assessment and establishment of PF integrated information system
1) Strengthening PF business feasibility assessment
- Establishment of business evaluation standards and procedures
- Introducing a certification system for professional evaluation agencies that will conduct business feasibility evaluations
- Mandatory acquisition of business feasibility assessment for PF projects
- Mandatory provision of business feasibility assessment results to investors: Mandatory provision to all investors in addition to lending institutions.
[25년상반기이내부동산개발사업관리등에관한법률(이하“[25년상반기이내부동산개발사업관리등에관한법률(이하“부동산개발사업관리법”) 개정, 같은 해 하반기 내 PF리스크 모범규준에 관련 내용 반영]
* For reference, the main contents of the Real Estate Development Business Management Act enactment are as follows (currently under review by the relevant committee of the National Assembly after the Real Estate Development Business Management Act was proposed on September 11, 2024)
2) Establishment of PF integrated information system
- Establishment of an integrated information system: Establishment of an integrated information system that regularly accumulates and discloses information on all stages of each business site, such as land sales and licensing status, financial structure, and sales rate regarding PF projects (refer to Article 10 of the Real Estate Development Project Management Act enactment).
- Enhancing the coordination power of the PF Coordination Committee: Enhancing the coordination power through management through an integrated information system (refer to Articles 11 to 21 of the Real Estate Development Project Management Act)
[25년 내 ISP 용역 착수, 26년 이후 시스템 구축]
all. Rationalization of responsible completion and improvement of land trust
- Improving responsible completion practices: Consider improving the system, such as clarifying the reasons for extending the responsible completion deadline and specifying the scope of compensation when the responsible completion deadline is exceeded. Specific details will be decided through the responsible completion improvement task force.
[25년 1분기 이내 책임준공 개선 TF 통해 현행 책임준공 관행에 대한 제도 개선 방안 마련] - Enhancement of land trust: ① Establishment of exemplary standards for responsible completion type land trust (standardization of land trust responsibility scope and standards and improvement of soundness management standards), ② Regulation of net capital ratio (Net Capital Ratio, net operating capital/total risk amount) for trust companies Maintenance and ③ Promotion of introduction of land trust limit compared to equity capital
[24년 12월 내 책준형 토지신탁 모범규준 마련, 25년 7월 내 금융투자업 시행세칙 개정]
la. Drive from a sales-type business structure to a development-and-operation business structure
- Providing priority rights to purchase public housing land to REITs: Promoting stable development and operation by providing priority rights to purchase excellent public housing land to REITs with stable equity capital. When necessary, LH participates as an equity investor in REITs. [25년 상반기 내 공공주택 업무처리지침 및 택지개발 업무처리지침 개정]
- Provision of regulatory special provisions: When operators with a high capital ratio operate after development, relief of floor area ratio or public contribution (including donation liabilities) is provided. [25년 상반기 내 부동산개발사업관리법 개정안 발의]
mind. Excellent Diplooper Certification System_Introduction of Implementation Capability Evaluation Procedure
- Establishment of standards and indicators for evaluating implementation capabilities of implementers: Introducing an implementation capability evaluation system through verification of implementation performance to foster excellent implementers. Similar to construction capability evaluation for construction companies
- Designation of an implementation capability evaluation agency: Consideration of credit rating agencies, credit inquiry companies as credit rating agencies, HUG, and Real Estate Agency as public institutions as evaluation agencies.
- Regular disclosure of implementation capability evaluation results: Plan to regularly disclose rankings for each company, etc.
[25년 상반기 내 연구용역 실시, 같은 해 하반기 내 관련 내용을 반영한 부동산개발사업 관리법 개정안 발의 -> 26년 상반기 내 하위 법령 개정 -> 26년 하반기 내 제도 시행]
2. Implications
The improvement plan includes measures to improve the system for all parties involved in the PF business, including developers, lending financial institutions, construction companies, and supervisory agencies, such as strengthening risk management related to PF loans, introducing related evaluation systems, and improving responsible completion practices. Accordingly, it is believed that it can be an effective improvement measure in terms of lowering the risk of insolvency spreading due to the low capital and high guarantee structure of the existing PF business.
In particular, by providing incentives such as raising the floor area ratio for development projects and easing public contributions through the PF capital ratio improvement plan, it induces developers to voluntarily increase their capital ratio, while the developer with a high equity capital ratio manages and operates it even after development. It is understood that the purpose is to revitalize development projects that manage and operate real estate even after development, rather than the previous business of developing real estate and liquidating the business through sales.
However, when PF loan regulations such as risk weight differentiation are introduced, the borrowing limit of businesses with low equity capital ratios may be reduced significantly compared to before, and a business feasibility evaluation through a professional evaluation agency is mandatory before PF lending. Since it is difficult to rule out the possibility that PF loans from financial companies may be partially restricted for low-income businesses, it is expected that this will have a significant impact on the financial structure of PF businesses in the future. Considering that the system improvement is scheduled to be implemented in stages through a grace period, it is believed that it will be necessary to review and respond to the content and grace period of PF loan regulations for each industry being introduced.
Meanwhile, if long-term rental housing investment projects by banks and insurance companies are permitted, long-term rental housing investment projects (Silver Stay, etc.) other than for business purposes may also be permitted, and financial trusts for real estate development trusts of institutional investors can be used to raise equity capital. Since it has the effect of, it is believed that it can be a meaningful financing method under the current trend of strengthening PF loan regulations. However, according to the improvement plan, it is expected that the trust company will have internal control standards that include a conflict of interest prevention system and investor protection standards as a requirement for financial trusts for institutional investors, so the detailed introduction of the system will be held in the future. It is deemed necessary to look into and find ways to utilize it.
In addition, if measures to improve responsible completion practices are implemented, it is expected that there will be an impact on the responsible completion structure of construction companies or trust companies in the market. However, since the specific details of system improvement have not been confirmed at this time and will be decided through the improvement TF, etc., it will be necessary to closely monitor discussions and trends related to future system improvement and establish response plans in advance.
If you have any questions or need assistance regarding the above, please contact the experts below at any time and we will provide you with more detailed information.
Sejong Law Firm’s Real Estate and Alternative Investment Group is a Band 1 group in the real estate sector of Chambers and Legal 500, and specializes in commercial real estate such as offices, retail, logistics, and data centers. We provide the best advisory services through a team of experts with extensive experience in investment and trading through collective investment vehicles (funds), real estate investment companies (REITs), and project finance investment companies (PFVs). there is.
