The Korean government has established a 600 billion won ($440 million) "Future City Fund" and begun offering low-interest loans to ease the financing burden for redevelopment projects in aging planned cities.
The Ministry of Land, Infrastructure and Transport (MOLIT) said Tuesday it has created the first Future City Fund to finance redevelopment projects in aging planned cities and has started issuing early-stage project loans. The fund was established through a process that began with a briefing session in March last year, followed by the selection of an asset manager and the setup of an investment trust.
Through the fund, project operators can secure financing at interest rates lower than market levels, backed by guarantees from the Korea Housing & Urban Guarantee Corporation (HUG). As of April this year, the interest rate on HUG-guaranteed loans stood at 3.7%, about 1.6 percentage points below the 5.3% rate that construction companies face when raising funds on their own. Project operators that have selected contractors can borrow up to 20 billion won ($14.7 million) in early-stage funding, with main project loans capped at 60% of total project costs.
MOLIT will also announce a revised enforcement decree of the Act on Redevelopment of Aging Planned Cities this month for public comment. The revision will flesh out delegated provisions of the legal amendment set to take effect August 4 and expand the scope of preliminary project operator designations. The ministry plans to use this to accelerate follow-up projects in first-generation new towns.
Currently, eight pilot districts in first-generation new towns have completed their designation as special redevelopment zones and are in the process of selecting project operators and construction contractors. Two districts in Sanbon, Gunpo, have designated the Korea Land and Housing Corporation (LH) as project operator, while six districts in Anyang, comprising 14,102 housing units, have applied for preliminary consultation on their special redevelopment plans.
"The fund will ease the burden of large-scale financing and accelerate project timelines," said Kim Young-kook, head of MOLIT's Housing Supply Promotion Headquarters. "We will implement the September 7 measures without setbacks to achieve our goal of breaking ground on 63,000 housing units in first-generation new towns by 2030."
