Tightened PF Loan Regulations Imperil Housing Supply

Stricter regulations on project financing (PF) loans, a key funding method for real estate development projects, have led to the closure of over 1,000 development companies in the past three years and six months. This contraction is hindering the private housing supply ecosystem, according to analyses. The downturn in the developer industry began in earnest in 2023. From January 2023 to July 2024, a total of 1,079 development firms went out of business, and 106 had their registrations canceled. Consequently, the total number of developers, which stood at 2,706 in January 2023, decreased to 2,224 by July 2024.

Between June 2023 and July 2024, following the launch of the Lee Jae-myung administration, 264 development companies ceased operations. Including the 21 firms whose registrations were canceled during this period, a total of 285 companies have disappeared from the market. In contrast, only 201 new companies were registered, indicating that bankruptcies have surpassed new registrations. Critics point out that the private supply base has weakened as bankruptcies began to outpace new registrations due to soaring construction costs and a stagnant market.

Key factors contributing to the financial distress include project delays and increased financial costs stemming from rising interest rates. Industry insiders explain that financial expenses, such as interest, have reached levels comparable to land acquisition costs, making it difficult to sustain projects. Choi Won-cheol, a professor at Yonsei University, analyzed the decline in developers as a signal of a weakening private supply base. While the government is preparing new housing supply plans, actual supply figures are contracting due to the sharp decrease in entities undertaking development.