South Korea to Convert Stalled Projects into Rental Housing, Boosting Supply with Incentives

South Korea's government is set to transform stalled real estate project financing (PF) sites into rental housing, addressing funding and project viability issues that have halted development. This initiative, building on the successes of a pilot program last year, will be regularized to broaden the scope of eligible sites and purchase types. The Ministry of Land, Infrastructure and Transport, the Financial Services Commission (FSC), the Korea Land and Housing Corporation (LH), and the Financial Supervisory Service (FSS) announced the plan on April 26.

The process involves the FSC and FSS providing information on PF sites interested in the rental housing program to the Ministry and LH. Once a developer confirms their intent to sell, LH will review the site and finalize a purchase agreement. Last year, this method resulted in purchase agreements for 12 sites, totaling approximately 2,600 housing units. This year, the program expands to include sites facing delayed funding that risk delaying construction, not just those already in distress. The purchase types will also broaden from new construction agreements to include existing buildings, covering sites already completed or nearing completion.

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Project financing sites are the most readily available resource for housing. We will actively utilize the purchase rental system so that stalled sites can become homes for young couples and newlyweds.

To further incentivize participation, tax benefits for new construction rental housing developers will be temporarily increased. The reduction rate for acquisition tax on land and buildings will rise from the current 15% to 70% next year, and then to 50% in 2028. LH's land acquisition support will also increase from 70% to a maximum of 80% of the land cost. For projects in regulated 수도권 (Seoul Metropolitan Area) zones, the purchase price will reflect construction cost increases by applying the cost-plus method. The FSS and LH have already conducted preliminary reviews of potential sites based on location and rental demand. LH will also offer on-site consultations at a PF distressed property sales briefing hosted by the FSS in September.

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This collaboration is an attempt to solve two tasks simultaneously: the soft landing of real estate project financing and the promotion of housing supply. Moving forward, we will continue to cooperate between related agencies so that finance can actively support the supply of housing that people can actually live in.