Chairman Kim Jin-pyo “I need commercial real estate loan monitoring”
Industry “distortion of market logic…overseas capital gains may be seen”
Democratic Party lawmaker Kim Jin-pyo (right) is entering the’K New Deal Support Plan Meeting’ held at the Myeong-dong Bank Federation Hall in Seoul on the 22nd. /yunhap news
In addition, the Democratic Party decided to ask the Financial Supervisory Service to monitor bank loans related to office buildings. The intent is to reduce the bank’s credit limit to prevent rising commercial real estate prices. The financial community is concerned that, following mortgage loans, there will be strong lending regulations for commercial real estate.
“You should apply for New Deal instead of building”
On the 22nd, ruling party lawmakers including Kim Jin-pyo, chairman of the Democratic Party’s National Economic Advisory Council and Kwan-seok Yoon, chairman of the political affairs committee, held a meeting with the 5th chairman of financial holdings at the Bank Federation Hall on the 22nd, and instead of refraining from investing in office buildings, strengthening support for K New Deal and innovative companies I asked you to do it.
Chairman Kim pointed out, “The nationwide vacancy rate has increased due to Corona 19, but the price of large buildings in Yeouido has risen by 25-35%. . It is also reported that he would ask the Financial Supervisory Service to manage the trend of bank loans for commercial real estate.
When institutional investors such as pension funds, companies, etc. buy office buildings, banks lend them at 50-75% of the market price. If you buy a building worth 100 billion won, it has been financed with a loan of up to 75 billion won. The ruling party’s idea is to apply the same LTV regulations to office buildings.
It is known that at the meeting on this day, a plan to reduce the proportion of LTV to around 50% was discussed. An official from a financial sector said, “Unlike housing, the large office building market has relatively stable prices and low risks.” “The strengthening regulations on real estate finance will have a considerable impact on the market.”
Financial companies are very proud. This is because if it leads to actual policies, market distortions will likely occur. Financial supervisory authorities are said to be working on developing guidelines for commercial real estate lending to banks. There is a high possibility that there will be measures to limit the mortgage recognition ratio (LTV), etc. under the nominal reason of checking the bank’s real estate credit risk. It is expected to have a wave in the real estate financial industry as a whole, including two financial sectors such as banks that make loans with real estate as collateral, insurance companies and savings banks, pension funds and asset management companies that invest in real estate assets.
“We should limit LTV as in China”
The case specifically mentioned at the meeting is’China’. As concerns over the real estate bubble intensified earlier this month, the Chinese government introduced a regulation that limits the LTV of real estate mortgage loans handled by banks in major cities to a maximum of 40% and lowers the share of real estate mortgage loans from large banks to within 32.5% of total loans. . This means that super-strong real estate regulations like China, a socialist country, could be introduced in Korea. An official from the bank explained, “It is a sign that it will be actively involved in the commercial building market as well as the residential LTV regulation.”
If an upper limit is introduced in LTV, another constraint will be placed on the’asset management’ in which banks roll deposits received from consumers. Currently, banks are lending around 60% LTV for commercial real estate. The type and location of real estate and the credit of the investor are comprehensively considered to determine how much loans to pay and the interest rate. Bank Federation Chairman Kim Kwang-soo met with reporters after the meeting and explained that “each bank is strengthening risk management, and the exposure (weight) of the real estate sector is autonomously determined.”
The market principle in which financial companies with different investment periods and target rates of return purchase (loan execution) loans is in operation. An official from the bank explained, “If pharmaceuticals are introduced only in banks, there will be no investment targets that can raise stable interest income for banks.”
“Overseas capital may see reflected profits”
The industry view is that a post-storm can lead not only to the banking sector, but also to the financial sector as a whole. Unlike housing, there are many participants in the commercial real estate market such as insurance companies, savings banks, and securities companies. It means that the market does not move according to the naive idea of’spend money on the Korean version of the New Deal instead of the building’.
Rather, it is also discussed the possibility of funds moving to other markets with high risk. “If bank loans are not available, insurance companies and two financial companies will lend money at a relatively high interest rate,” said the head of a research center at a real estate manager, explained.
There are also criticisms that it is an ignorant remark that does not take into account the fact that members of the pension funds and mutual aid associations, which are major investors of commercial real estate, are citizens. An official in the real estate industry said, “The reason that major domestic pension funds invest in office buildings is because they can steadily generate profits and return them to members.” .
Some point out that less regulated foreign capital can benefit from reflection. A representative of a real estate asset management company said, “Before the development of the real estate financial market where pension funds and mutual aid banks participated, there is a precedent that Gangnam Star Tower (currently Gangnam Finance Building) was sold to overseas capital to make enormous money. “If you intervene, it could lead to a bigger aftermath than housing policy,” he said.
Reporters Jeong So-ram/Kim Dae-hoon/Oh Hyun-ah [email protected]