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[Finance] Considerations in Station Area Youth Housing PF

2021.11.02

Station Area Youth Housing Project is intended for the Seoul government to supply rental houses in the station areas to/from which it is easy to commute, for the purpose of promoting the residential stability of the youth including newlyweds. In order to lead to business operators’ participation in this Project, the Seoul government provides benefits, such as finance including class upgrade, secondary preservation and guarantee by Korea Housing Finance Corporation (“KHFC”), etc. While many business operators are considering participation, the Project is speeding up as the limit of secondary preservation is about to be exhausted.  
 
There are specific tax benefits granted for this Project, such as reduction and exemption of the following taxes: acquisition tax and property tax upon acquisition of land or building before commencement of construction; acquisition tax, property tax, comprehensive real estate tax, and income tax (corporate income tax) upon completion of construction and during lease period; and capital gains tax upon sale after lease. 
 
In addition to these tax benefits over the entire project period, financial supports are provided for promotion of the Station Area Youth Housing Project. The ‘Station Area Youth Housing Project Financing’ means acquisition of these financial supports.  
 
In general, funding for the Station Area Youth Housing PF is largely classified into the tranche to be provided under the guarantee provided by KHFC and the tranche (additional tranche may be established depending on the business structure) to be provided under the secondary preservation provided by the Seoul government (i.e., on the terms that up to 1.5% of the actual loan interest rate shall be paid by the Seoul government). The loans will be provided by three commercial banks including Woori Bank, which is a partner bank of the Seoul government. Fairly low interest rate is available because of the application of the guarantee (for construction funds) provided by KHFC and the secondary preservation provided by the Seoul government.  
 
For funding of the Station Area Youth Housing PF with these merits, the business operators and lending financial institutions have to consider the following matters in addition to the considerations for general PF:  
 
First, it shall be considered that the loan period is a long term. Compared to the general PFs in which loans are usually repaid through sales of property, this PF will be provided for a long term of 144 months or more including the mandatory lease period (8 years) after construction.  
 
Second, it shall be considered that the method and time of disposal vary depending on each kind of target property. The target properties include the properties to be privately sold whose sales are available immediately after completion of construction as well as leased properties. Disposal and lease of shopping centers shall be also considered. The repayment schedule shall be determined in advance based on the projection of estimated revenues (time and amount), such as sales price, security deposits, rents, maintenance cost, etc.  
 
Third, diversity of regulatory laws shall be considered. Instead of enjoying the benefits of the Station Area Youth Housing Project, the business operators shall comply with the municipal ordinance of the Seoul government and the applicable agreement for construction of youth housing for each project with the Seoul government with regard to the repayment method, use purpose, the limit of rent increase, etc., in addition to the general housing laws and regulations, etc.  
 
In addition, this project involves many stakeholders. It is important to coordinate various opinions of the stakeholders, including developers, constructors, lenders, guarantors, and the Seoul government, etc.  
 
Given these considerations, the Station Area Youth Housing PF requires more specialized legal advice than the general PF. JIPYONG, through task forces organized at the initial stage of a youth housing project, has successfully provided legal advice for a variety of Station Area Youth Housing PFs for several years. As a result, we hold a leading position and are able to provide prompt and precise advice in this PF sector.

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+82-2-6200-1875 sbpark@jipyong.com

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