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/ Financial Services Commission

The South Korean government will delay the implementation of equity capital ratio regulations on residential real estate project financing (PF) sites by two years to promote housing supply. Non-residential sites, which carry relatively higher delinquency rates, will face the regulations starting next year as originally planned.

The Financial Services Commission (FSC) announced on the 13th that it held a meeting to review real estate PF conditions and financial support measures to boost housing supply—together with related agencies including the Financial Supervisory Service, the Ministry of Economy and Finance, and the Ministry of Land, Infrastructure and Transport—and finalized execution plans for PF equity ratio regulations on residential project sites.

For residential project sites, the government will grant a two-year grace period on revising soundness and loan-loss provisioning standards linked to PF equity ratios, loan underwriting requirements for non-bank lending sectors, and risk-weight adjustments. The required equity ratio will be raised in stages, starting at 5% in 2029, followed by 10% in 2030, 15% in 2031, and reaching 20% from 2032 onward.

For non-residential sites, regulations will take effect in 2027 as scheduled. Soundness and provisioning standards alongside loan eligibility criteria for non-bank financial sectors will be phased up starting from 5% in 2027, while risk-weight adjustments will be introduced based on a 20% equity ratio.

However, easing risk weights for banks and securities firms on residential project sites will apply starting in 2027. Under this policy, risk weights can be reduced if project sites satisfy a 5% equity ratio even during the 2027–2028 period, maintaining incentives to channel capital into housing projects.

Financial authorities will also implement close supervision by assigning dedicated officers to each of the 279 residential project sites across regulated zones in the capital region to monitor factors causing project delays. At the real estate PF and construction financial support center operated by the Financial Supervisory Service and the Korea Development Bank since last month, 47 cases had been filed as of the 2nd, of which 27 completed consultation and review while 20 were assigned to relevant agencies.

In the PF market, new capital supply expanded while the delinquency rate edged down slightly. New PF loan originations in the second quarter reached 23.5 trillion won, up 6.7 trillion won from the previous quarter. Outstanding PF loans across the financial sector totaled 115.8 trillion won as of late June, rising by 300 billion won quarter-on-quarter to record the first increase since late 2023.

During the same period, the PF loan delinquency rate dipped by 0.09 percentage point from the prior quarter to 4.56%. Total PF exposure stood at 168.8 trillion won, decreasing by 1 trillion won from the preceding quarter, though the pace of decline slowed.

In feasibility evaluations, loans classified as cautionary (Grade C) or at risk of insolvency (Grade D) amounted to 15.1 trillion won, down 1.3 trillion won from the previous quarter. Their share of total PF exposure also dropped from 9.6% to 9.0%.

Through late June, the cumulative volume of liquidated or restructured sites among those categorized as cautionary or at risk of insolvency reached 19.7 trillion won. Of this total, liquidations accounted for 14.4 trillion won and restructurings 5.3 trillion won. Financial authorities plan to expand industry-led self-rescue funds from the current 7.3 trillion won to 10 trillion won, while newly establishing a 3 trillion won fund managed by KAMCO.

The government stated, "Under the foundational principle of structurally improving the real estate PF market, we will rigorously manage the financial soundness of financial institutions."

                                                                                                               Park Seo-a