A private developers' association and a major brokerage have begun jointly raising funds to break a logjam in South Korea's real estate development financing and restart stalled new housing projects.
The Korea Developers Association (KODA) and KB Securities signed a memorandum of understanding on the 3rd centered on jointly creating a real estate development equity fund. The two sides plan to build a sound cooperation model to modernize development financing and supply real liquidity to project sites facing funding shortages. The fund is expected to serve as seed money for small and mid-sized developers stuck at the early stages of their projects because of an overhaul of the real estate project financing (PF) system and difficulties in raising bridge loans.
The partnership is also expected to help ease the housing supply crunch in the greater Seoul area. The two sides will focus support on strengthening the equity capital of sound project sites in the capital region, in line with the government's Aug. 13 housing supply policy. Lowering the excessive reliance on high-interest borrowing at the bridge loan stage could bring stalled sites that have been unable to break ground back on track.
Under the plan, the association will tap a network of about 1,000 member companies and some 2,200 registered development businesses to identify sound projects, while KB Securities will bring in professional financial screening and fund management infrastructure to stabilize the projects and move up groundbreaking. The two organizations plan to hold working-level talks and briefing sessions immediately after signing the agreement and begin screening candidate sites for investment.
The fund also marks the first tangible result of a "seed money fund" pledge made by KODA Chairman Kim Han-mo when the chairman took office in February. At the time, Kim promised to create a self-sustaining financial platform centered on member companies to cope with mounting market uncertainty.
"This fund will meet the public purpose of expanding the nation's housing supply while also laying a foundation that opens new opportunities for member companies and for young talent who dream of becoming developers," Kim said. "Using the successful establishment of this fund as a stepping stone, we will continue to create seed money funds and lay the groundwork for a mutual aid association, a long-cherished goal of the industry, without setbacks."
Moon Sung-chul, a group head at KB Securities, said: "Based on the experience we have accumulated in arranging PF for large landmark projects and our management know-how, we will strengthen developers' equity capital and build stable financial structures." Moon added: "Through our partnership with the association, we will contribute to a soft landing in the PF market and to the modernization of development financing."
