The Korea Housing & Urban Guarantee Corporation (HUG) has tightened its credit standards so that it can recall loans in full if construction on street-unit housing redevelopment projects falls just 25 percentage points behind schedule. Analysts point out that because a delay can cut off a project's funding, the move could clash with government policy aimed at expanding housing supply.
According to the financial industry on the 4th, HUG partially revised the enforcement rules of its regulations governing urban account financing support, changing the credit agreement terms for construction financing in street-unit housing redevelopment projects. The change took effect on the 3rd of this month, and Woori Bank, which exclusively handles the product, has completed follow-up measures such as revising its agreement documents.
The revision allows lenders to demand full repayment of loans at once if the construction progress rate falls 25 percentage points or more behind the business plan without a legitimate reason such as a natural disaster or cultural heritage excavation. The previous threshold was 30 percentage points.
It also newly added guarantee accidents as grounds for loan recall. If the loan principal is not repaid within the agreed deadline, or if loan interest is overdue for three months or more, the bank can request HUG to fulfill the guarantee. The regulation does not apply to existing loans and applies only to new financing handled on or after the 3rd of this month.
HUG explained that the measure is intended to minimize project delays, keep redevelopment projects on schedule, and reduce sites that drift for extended periods. It judged that strengthening the responsibilities of project operators and construction firms would speed up construction while also reducing guarantee risk.
However, redevelopment projects often fall behind schedule due to variables that operators find difficult to control, such as construction cost negotiations, permit delays, and internal conflicts within associations. The industry is concerned that uniformly tightening recall standards could block financing even for projects capable of normal progress, thereby delaying supply instead. In particular, small-scale redevelopment projects are highly likely to drift for a long time if construction is halted, as it is difficult to find a new construction firm or financing source. In fact, of the 225 street-unit housing redevelopment projects underway in Seoul, 44 have been delayed for more than three years despite having received association establishment approval.
"It is right to quickly wind down sites where redevelopment drags on endlessly, but recalling loans over even a slight delay could affect housing supply," a financial industry official said. "Even if HUG's guarantee risk decreases, it will be difficult to avoid project halts and delays in housing supply."
