The Korean real estate trust industry has reported an unprecedented operating loss of 515.7 billion won in 2024, marking the first deficit in 14 years. This downturn is primarily attributed to a combination of a real estate project financing (PF) crisis and a surge in litigation over completion-guarantee obligations, raising concerns about the long-term stability of this critical sector.
According to the Korea Financial Investment Association, the total net loss for the industry reached 641.7 billion won by the end of the year. The losses were most pronounced among major financial-affiliated trust companies, with Kyobo Asset Trust leading the way with a loss of 312 billion won. Shinhan Asset Trust followed with a loss of 250.4 billion won, while KB Real Estate Trust and Daishin Asset Trust recorded losses of 106.8 billion won and 20.9 billion won, respectively.
Mugungwha Trust, which had reported a profit of 16.4 billion won in 2023, was hit hard in 2024, turning a profit into a loss with an operating deficit of 76 billion won. Similarly, Korea Trust, once a steady performer, posted a loss of 22.5 billion won. Although seven of the 13 trust companies posted profits, even these companies saw declines in operating profits. For instance, Woori Asset Trust’s profits plummeted from 44.8 billion won in 2023 to just 6.9 billion won last year, while Hana Asset Trust’s profits fell by 27%, from 106.4 billion won to 78.7 billion won.
The downturn in the real estate trust sector is closely linked to the broader struggles facing Korea’s construction market. Last year, 29 domestic construction companies filed for bankruptcy, the highest number since 2019, further destabilizing the trust industry. A key factor in this crisis is the growing number of litigation cases related to completion-guarantee obligations, in which trust companies are required to ensure the completion of construction projects, thereby bearing significant financial risk if these projects fail.
One insider remarked, “The issue of completion-guarantee trusts has been building since 2023, and we expect a series of litigation outcomes this year.” This is particularly concerning for KB Real Estate Trust, which is facing lawsuits amounting to 43.6 billion won for failing to meet completion-guarantee obligations for residential and officetel projects in Seoul and Busan. Additionally, the company was sued for 10.4 billion won in damages by a consortium following the bankruptcy of Saecheonyeon General Construction, which had been responsible for constructing a logistics center in Gyeonggi Province.
The financial difficulties are compounded by regulatory pressures requiring trust companies to increase their loan loss provisions to strengthen their financial resilience. This has added to the industry’s financial burden, as evidenced by Mugungwha Trust’s loan loss provisions, which quadrupled from 22.3 billion won in 2023 to 90 billion won last year. One industry official noted, “The current system demands that we cover the entire principal and interest of PF loans, which is an unreasonable expectation.”
As the industry struggles, government intervention has become increasingly critical. Plans are underway to adjust completion-guarantee contracts to offer more flexibility, including extending deadlines to accommodate weather-related delays and adjusting financial obligations based on the duration of violations. However, there are concerns about the potential effectiveness of these measures in stabilizing the industry.
The stark contrast between the industry’s current performance and the success of 2023, when real estate trust companies posted a total operating profit of 331.1 billion won, underscores the vulnerability of the sector. The disruption caused by the COVID-19 pandemic, combined with rising material costs and delays in construction timelines, has contributed to the industry’s decline.
Looking ahead, experts predict continued challenges for the real estate trust sector. Litigation regarding completion-guarantee obligations is expected to intensify, and new orders for trust services are likely to decline due to the ongoing risks in project management. According to the Financial Supervisory Service’s disclosure system, Korea Asset Trust—the industry’s leading company—reported new orders of just 49.8 billion won in the first three quarters of 2024, an 18% drop from the previous year and the lowest level since figures were first disclosed in 2017. This decline in new orders reflects the deepening crisis in real estate project financing and the growing uncertainty within the industry.
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