LH Faces 30 Trillion Won Funding Gap for 90,000 Rental Units Amid Financial Woes

South Korea's housing authority, the Korea Land & Housing Corporation (LH), is facing mounting concerns over its financial health as it prepares to supply 90,000 non-apartment rental units. The initiative, aimed at stabilizing the rental market following the "jeonse" fraud crisis, places significant strain on LH's already precarious financial situation.

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The market demand for acquired housing is sufficient, but the problem is the required budget.

LH recorded a substantial operating loss of 641.3 billion won last year, a stark contrast to the 5.66 trillion won profit in 2021. This marks the corporation's first annual net loss since its integration in 2009. Compounding these issues, LH's debt has ballooned, reaching 173.7 trillion won last year, with its debt-to-equity ratio climbing to 230.8% from 217.7% in 2023. This deterioration marks the first increase in the ratio in 14 years.

Despite these financial challenges, LH's role in housing policy is expanding. The corporation plans to commence construction on 52,000 public housing units this year, with associated project orders totaling 17.9 trillion won. The government's recent announcement of the 90,000 non-apartment rental unit acquisition program, with LH as the implementing body, further increases its responsibilities. This program aims to revitalize the non-apartment market and address recent rental shortages in the Seoul metropolitan area.

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If the target volume is too ambitious compared to the financial capacity of the acquiring entity, it can lead to unreasonable measures for the implementing agency.

The primary hurdle is the significant funding required. LH estimates that acquiring 90,000 units will necessitate at least 30 trillion won over two years. While the Housing & Urban Guarantee Corporation provides subsidies for half the cost, the remaining amount must be financed by LH. Market participants also express concern that the current purchase prices offered by LH are too low to incentivize private developers to participate, potentially requiring higher prices and thus increasing the overall financial burden. A reform plan to address LH's financial difficulties, initially expected last year, has yet to be released, with potential delays pushing its announcement to the latter half of the year.

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Existing villa developers sold at government-suggested low prices due to the collapse of the non-apartment market, but no one will newly enter the market at the current purchase price.