Property market to be supported by Korean financial regulators

Financial Services Commission Chairman Kim Joo-hyun at a briefing in central Seoul on Friday. [FSC]

Korea's regulators are coming in with heavy support for the property market, which has been teetering as a result of falling values and high debt levels.

“We will prepare for defaults in real estate project financing, which has been identified as the biggest risk this year, to make sure a soft landing of the property market is achieved,” the Financial Services Commission (FSC) said in a report to President Yoon Suk Yeol on Monday.

The FSC will provide financial support to businesses with favorable corporate value through market stabilization programs. At the same time, it will encourage lenders to work out debts with risky enterprises on a voluntary basis.

Regulations on home buyers will be relaxed.

The regulators will raise the loan-to-value ratio on single home owners considering the household debt and property market conditions.

Last month, the Ministry of Land, Infrastructure and Transport said it would raise the loan-to-value (LTV) ratio to 30 percent from zero for multiple homeowners.

Concerns about project financing defaults have increased since last year as rates increased rapidly and a company related to the Legoland Korea Resort developer defaulted.

The outlook on the debt of several builders was lowered, including Lotte Engineering & Construction and Taeyoung Engineering & Construction, by Nice Investors Service last month.

To prevent property risks from spreading, a system requiring banks to raise reserves and allowances for bad debts will be introduced.

The FSC’s measures were part of 12 plans it intends to focus on this year.

The financial authority also vowed to make it easier for retail investors to invest in small firms.

It will introduce the Business Development Company structure, which is an organization that invests in small-and-medium-sized companies to help them grow in the initial stages of their development. The goal is to make it easier for retail investors to invest in venture and innovative firms with high potential growth.

A platform where non-listed companies can be traded will also become systemized to offer investment opportunity to investors while helping startups smoothly raise funds, the FSC added. Currently, similar platforms are being operated under regulatory sandbox conditions.

To foster the growth of fintech firms in the financial sector, policy funding for fintech firms will be doubled to a trillion won ($815 million).

Regulations on crypto currencies will be gradually prepared along the “international discussion trend,” with a goal of protecting crypto asset users. The first stage of the regulation will aim to protect customer assets while the second stage will be to complement the regulations for market order when international standard takes shape, the FSC added.

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