South Korea Intensifies Oversight to Accelerate Real Estate Restructuring

South Korea’s financial watchdog, the Financial Supervisory Service, announced on Monday that it is ramping up efforts to assess and restructure real estate projects in order to address the ongoing challenges in the sector. This move comes as house prices in South Korea have been on a downward trend since June 2023, largely due to high interest rates dampening demand and concerns about debt repayment at construction firms.

The delinquency rate of real estate projects has been on the rise, reaching 2.70% by the end of last year, up from 1.19% the year before and 0.37% at the end of 2021. In response to these challenges, the FSS is implementing new guidelines that will take effect in June. These guidelines will subject more loans and financial institutions to profitability assessments related to real estate projects, with a focus on evaluating risks more effectively.

Additionally, the FSS will tighten its supervision of financial institutions to ensure that they take appropriate follow-up actions on real estate projects with default risks. To support a smooth transition in the real estate market, commercial banks and insurance firms have prepared a syndicated loan of one trillion won ($731.62 million). This funding will help maintain demand and liquidity during the restructuring process, with the potential to increase the amount to five trillion won if necessary.

Overall, these measures aim to address the challenges facing the real estate sector in South Korea and facilitate a more orderly restructuring process. Stay tuned for further updates on this developing story.