The Seoul Housing & Communities Corporation (SH) has incurred 15.4 billion won in interest on the public corporation bonds and borrowings it has issued so far to develop the Yongsan International Business District, according to disclosures. As the Ministry of Land, Infrastructure and Transport (MOLIT) and the Seoul metropolitan government fail to find common ground over the development method, housing supply volume, and school site acquisition for the district, concerns are mounting that the longer the project is delayed, the heavier SH's interest burden will become and the more its financial structure will deteriorate.
According to the Ministry of the Interior and Safety's first-quarter disclosure on local public enterprise bond issuance, SH raised a total of 400 billion won in short-term funds in February last year through Woori Investment & Securities and Shinhan Bank—100 billion won and 300 billion won, respectively—at interest rates of 3.47 to 3.48 percent. The corporation issued additional bonds in July (250 billion won, 2.55 percent), October (120 billion won, 2.68 percent), and December (200 billion won, 3.09 percent) of the same year. This year, it also brought in additional funds in the form of borrowings from landowners in February and March. In total, SH's fundraising related to the Yongsan International Business District project amounted to nine cases, with a cumulative amount raised of 973.5 billion won.
Of this, interest of about 3.5 billion won arose from the initial 400 billion won bridge loan, which matured and was repaid in May last year, while about 11.9 billion won in interest has accumulated on the current outstanding balance of 573.5 billion won, bringing total cumulative interest costs to about 15.4 billion won. The initial bridge loan rate was high at 3.47 to 3.48 percent, then fell to the 2.55 to 2.68 percent range in the second half of last year, but has continued its upward trend this year, exceeding 3 percent. The weighted average interest rate on the current outstanding balance stands at around 2.77 percent, a structure that automatically generates about 15.87 billion won in interest annually.
The problem is that the amount raised so far represents only a fraction of the total burden SH must shoulder. Based on the business plan submitted by Korail and SH in December last year, the total project cost is around 14.3 trillion won, and because the two institutions jointly execute the project at a 7-to-3 ratio, SH's share is estimated at around 4.3 trillion won. The 973.5 billion won actually raised so far accounts for only the 20-percent range of the total burden. The remaining roughly 3 trillion won must be raised additionally.
The fact that most of the bonds SH has issued are short-term instruments of two to three years maturing in 2027 to 2029 is another factor increasing the burden. Since the existing bonds mature before the infrastructure development is completed, the possibility cannot be ruled out that SH will be caught in a vicious cycle of having to refinance at higher interest rates before repaying the principal with sales revenue. Accordingly, SH is understood to have expressed concern to the Seoul metropolitan government last month that its financial structure would deteriorate if the sale of Yongsan land is delayed. SH's debt ratio rose from 185.35 percent in 2021 to 205.79 percent last year, surpassing 200 percent.
While the project should be confirmed quickly and made profitable through sales, MOLIT and the Seoul metropolitan government have still failed to narrow their differences over the housing supply volume within Yongsan. The Seoul metropolitan government sees 8,000 households as the limit, while MOLIT takes the position that the figure should be increased to more than 10,000 households. The Seoul metropolitan government points out that if the volume changes, deliberation and impact assessments would have to be redone from the start, potentially further delaying urban housing supply itself. The longer the negotiations drag on, the more the issuance timing for the 3 trillion won in funds SH has yet to raise will also be pushed back, and if market interest rates rise further in the meantime, the funding cost itself could rise across the board.
The deterioration of SH's financial structure due to the Yongsan International Business District project delay will lead to harm for citizens, critics say. The Seoul metropolitan government makes cash equity contributions to SH each year, and these contributions come from the city's general account. The budget used to cover the Yongsan interest burden is money that could have been spent in other areas such as welfare and education. Concerns are also raised that if SH's debt ratio rises, the fundraising capacity for other public housing supply projects underway could also shrink. Suh Jin-hyung, a professor of real estate law at Kwangwoon University, pointed out, "To strengthen the public function of housing stability as a public housing enterprise, the fiscal soundness problem must be resolved," adding, "If SH's debt ratio and interest burden rise, it will ultimately shift the burden onto future generations and could cause disruptions in pursuing other projects."
