Govt gives go ahead to bad bank

The Korea Times

The Korea Times

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Sat, December 9, 2023 | 20:04

Business

Govt gives go ahead to bad bank

Posted : 2011-05-01 16:15

Updated : 2011-05-01 16:15

The government announced a package of measures designed to stimulate the housing market by helping first-time buyers and property investors, which included creating a bad bank to soak up soured construction loans.

Chung Jong-hwan, minister of land, transport and maritime affairs, speaks during a news conference at the government complex in Gwacheon, Gyeonggi Province, Sunday. / Yonhap

Transfer taxes to be eased to stimulate property market

By Kim Tong-hyung

The government announced a package of measures designed to stimulate the housing market by helping first-time buyers and property investors, which included creating a bad bank to soak up soured construction loans.

Reducing transfer taxes for homeowners in Seoul and the metropolitan area and extending tax incentives for real estate investment trusts (REITs) and funds that buy unsold properties were also part of the plan unveiled Sunday.

The move comes at a time when the toxic real estate and construction sectors are increasingly deteriorating the finances of families and builders.

The deflating property bubble also led to a crisis at a slew of secondary banks, which had indulged in a lending spree over the past decade to exploit the speculative demand, with a larger number of borrowers being unable to repay.

But the recent plans announced by government officials seemed more of a confession of guilt than strategy. It’s debatable whether the cautious adjustments based on recycled old ideas will be enough to prevent a slew of bankruptcies among builders, when a property market recovery seems unlikely in the foreseeable future.

``There is no argument that the prolonged slump in the property market and the reduction in the supply of houses could have a negative effect on employment and economic activity as well as the housing situation of low-to-middle-class households,’’ said Chung Jong-hwan, minister of land, transport and maritime affairs, in a news conference held jointly with the Strategy and Finance Ministry and the Financial Services Commission.

``There are around 50 to 60 construction projects that are considered candidates for the bad bank to step in, but no decision has been made yet. We will also accelerate the clean-up of poorly-managed construction firms, with creditors reviewing the financial conditions of the companies to determine whether to put them under a workout process or undergo debt restructuring.’’

Government sources say that the new debt-clearing agency will be some variant of a private equity fund (PEF) that will be managed by the state-run United Asset Management Corporation (UAMCO).

The bad bank, which is to be established by June, will first acquire 1 trillion won worth of soured project financing (PF) loans as at a 50 percent discount, Chung said.

The banking sector currently shoulders about 6.7 trillion won worth of risky construction loans. UAMCO or other government vehicles may end up creating more clean-up funds should toxic assets rise inexorably.

Policymakers are also desperate to encourage property transactions as the dearth of homebuyers has complicated the country’s housing problems by having rents skyrocket.

The government plans to have more middle-class homeowners in Seoul, Gwacheon and the five major ``new towns in the metropolitan area of Bundang, Ilsan, Pyeongchon, Sanbon and Jungdong exempted from paying transfer taxes when properties change hands.

Previously, the tax benefit had been offered to homeowners who had just one property that was priced below 900 million won and lived there for at least two years. The new government plans lift the living period requisite.

To reduce the country’s bloated inventory of unsold new homes, which is further straining the finances of builders, the government promised more tax incentives on REITs and other funds that are buying these properties.

According to the Bank of Korea (BOK), construction investment dropped 6.7 percent during the Jan.-March period from the preceding quarter, the sharpest monthly decline in 13 years.

thkim@koreatimes.co.kr