Investors will also get tax benefits
The government said Sunday it would extend tax benefits to real estate investors in the Seoul metropolitan area and widen financial support for local builders as a way of shoring up the sluggish housing market.
In their joint statement, the Land Ministry, the Finance Ministry and the Financial Supervisory Commission said the government will urge banks to roll over maturing project finance loans to builders and provide financial support for those facing a credit crunch.
The measure also includes offering tax benefits on real estate investment trusts and funds to attract capital into the housing market, which has seen a prolonged slump since the onset of the 2008-09 financial crisis.
“(The authorities) will try as much as we can to help viable construction deals get promoted smoothly by getting sufficient project financing loans,” the statement said.
The package of measures follows a series of policy updates since last August after soured project finance loans by builders and rising mortgage debt drove home prices down. The anemic real estate industry has been a drag on Asia’s fourth-largest economy.
“The government came up with the measures in a bid to create a soft landing for the construction sector through the disposal of soured project finance loans and to revive the housing market by improving conditions for home supply,” it said.
Seoul is considering establishing a bad bank which will purchase project finance defaults by developers. The plan is to take contributions from eight local commercial banks and absorb the toxic assets of the housing industry.
Builders take project finance loans for their long-term real estate development project, usually viewed as risky as the debt is paid back only from the profit generated upon completion.
The bad debt ratio at local banks rose to 1.98 percent of their total lending in the first quarter, the FSC said. Five builders entered court receivership or debt restructuring programs due to a liquidity shortage.
The tax benefits extended go to residents of Seoul and satellite cities including Bundang, Gwacheon, Ilsan, Pyungchon, Sanbon and Jungdong. Residents of Seoul and the wider metropolitan area are no longer required to have lived in their homes for two years or more to receive exemptions on the real estate transfer tax.
Leasing prices have been rising notably over the past year after home transactions froze, an indication that potential buyers favor renting instead of owning a home for fear of price drops. The previous package of measures arriving on March 22 included the halving of acquisition tax from 2 to 1 percent for homes valued at 900 million won ($833,221) and below, but home transactions continued to fall in April. Home transactions for the February-March period amounted to 16,500 but fell to 13,200 by March-end and 12,400 in April, the government said.
By Cynthia J. Kim (email@example.com