South Korean public guarantees increasingly backing low-equity PF projects

Data released by the Korea Housing & Urban Guarantee Corporation (HUG) and the Korea Housing Finance Corporation (HF) reveals a rising trend of low-capital real estate Project Financing (PF) projects receiving massive public guarantees.

According to data provided to lawmaker Heo Young, approximately 70.6% of new PF guarantees issued by HUG this year were for projects where the developer's own investment was 5% or less of the total project cost. This accounts for roughly 7.45 trillion won of HUG's 9.82 trillion won in new guarantees. Similarly, 60% of new guarantees from HF for bank-funded PF projects involved developer investments of 5% or less, totaling approximately 1.07 trillion won.

Experts warn that low developer equity increases the risk of losses being transferred to public guarantee institutions if projects fail. Despite government efforts to incentivize higher equity through guarantee fee discounts for projects with over 10% equity, the practice of low-capital, high-guarantee PF is worsening. The proportion of low-investment projects at HUG rose from 50% in 2021 to 70.6% this year, while HF's proportion reached a six-year high of 60%.