Real estate defaults deepen at brokerage firms

The default rate for real estate project finance loans at brokerage firms surpassed 17 percent as of June, according to the Financial Services Commission (FSC) on Tuesday.

Financial Services Commission Vice Chairman Kim So-young, center, speaks in a meeting held at the government complex in central Seoul on Tuesday. [FSC]

The default rate for real estate project finance loans at brokerage firms surpassed 17 percent as of June, according to the Financial Services Commission (FSC) on Tuesday.

The default rate reached 17.28 percent in the final month of the second quarter, up from 10.38 percent at the end of last year and 3.37 percent from the end of 2020.

The outstanding loan default stood at 900 billion won ($675 million), which is 1.2 percent of the total capital owned by brokerage firms. The figure is “sufficiently manageable,” said the FSC in a statement.

The financial regulator said the growth of the default rate at all financial companies, including banks and savings banks, has slowed to 2.17 percent at the end of June compared to 2.01 percent at the end of March and 1.19 percent in December last year.

“The growth trend has considerably slowed for us to agree that the risks will not spread across general finance,” said FSC Vice Chairman Kim So-young in a meeting with officials from financial institutions, including the Financial Supervisory Service and Ministry of Economy and Finance at the government complex in central Seoul.

“We believe continued supervision and management are needed as uncertainties in the real estate project financing market remain, like a key interest rate that remains high and factors driving up cost for construction and safety.”

Kim added that the reorganization of workplaces for real estate project financing and adding “new money” into the market are the keys to normalizing the project financing and the housing supply.

A fund worth a trillion won by the Korea Asset Management Corporation is set to be activated in September.

The financial authorities also advised financial companies to sufficiently raise appropriation for bad debt and to provide them with enough financing. Real estate developers were told to strictly monitor their financing plans and to make a self-rescue effort, including sales of assets and reorganization of workplaces.

Concerns for project finance rose following the default in project financing for the construction of the Legoland theme park in Gangwon Province in September 2022.

BY JIN MIN-JI [jin.minji@joongang.co.kr]