A Study on the Sophistication of Real Estate Project Financing - Through Credit Enhancement of Real Estate Trust Company -

Korean people show high interest in real estate ownership, and Korea is the top OECD country in terms of the share of real estate in private individuals’ asset portfolios. Currently, the Korean government implements risk management policies against increased household debts, and, among others, imposes restrictions on investment in real estate, such as mortgage loan regulations and public housing site reduction. As a result, the real estate mortgage financial market has been tightened, and naturally the real estate development business sector has also been affected. Given the real estate market situation, it becomes increasingly difficult for real estate developers to finance their projects on the basis of their credit alone. In this context, it becomes a trend in the development project financing market that risk associated with real estate development project financing is distributed through the credit enhancement of companies concerned in development projects, such as developer, constructor, trust company, and financial institution. Therefore, this paper introduces a system of carrying out a development project in the real estate market through financial structuralization that distributes risk associated with the insufficient credit of every party from financing to finishing; and discusses about the validity of this structuralization product. And futhermore, it intends to seek the sophistication of real estate project financing through the structuralization of real estate finance.