[Desk Column] Who Turned the Housing Subscription Savings into a Lottery?

[Asia Economy Jung Doohwan, Head of Construction and Real Estate Department] How would you react if someone forced you to sell an item in the market that is not available even at 10,000 won for 5,000 won? What if the person who bought that item at half price resells it in the market to make a 5,000 won profit? It would be infuriating.

This is exactly the current situation in the new apartment pre-sale market. In Seoul as well as the metropolitan area, every pre-sale apartment is crowded with applicants. While apartment prices in the Gangnam area of Seoul, considered a barometer of housing prices, have been declining since March, the pre-sale market shows a completely different atmosphere. Single-digit or even double-digit subscription competition rates are nowhere near enough to make an impression.

The reason the subscription market is overheating is simple and clear. Just by comparing with surrounding apartment prices, a price difference of tens of millions to hundreds of millions of won is guaranteed. Take the recently pre-sold Heukseok River Park Xi in Heukseok-dong, Dongjak-gu, Seoul. The pre-sale price for a 59㎡ exclusive area apartment ranges from a minimum of 646 million won to a maximum of 720 million won. Compared to the same size apartment in the nearby L apartment complex, which moved in two years ago in a similar location, there is roughly a 400 to 500 million won price difference. It is natural that 31,277 applicants flocked for the supply of 326 households.

This redevelopment complex’s general pre-sale price being lower reduces the profits of the union members who are the project owners. This is because the project structure covers construction costs through general pre-sale profits. Nevertheless, the union had no choice but to supply at prices significantly lower than market prices due to the intervention of the Housing and Urban Guarantee Corporation (HUG), the institution issuing pre-sale guarantees, which suppresses pre-sale prices. Considering that the government holds a 68.25% stake in HUG, it effectively means the government controls the pre-sale prices.

The government’s logic for controlling pre-sale prices is mainly twofold. One is the concern that high pre-sale prices could stimulate surrounding housing prices and cause price increases. The other is the rationale of supplying affordable housing to genuine buyers. The argument that high pre-sale prices stimulate surrounding housing prices gains credibility from past experience.

The problem lies in the latter. There is currently no real benefit from suppressing pre-sale prices. To stabilize housing prices by lowering the pre-sale prices of new homes, the supply volume must be overwhelmingly large enough to influence market prices, but the reality is otherwise. Moreover, it does not align with the public interest. The profits that the project owners would have enjoyed simply transfer to some lucky winners. The government’s control of pre-sale prices has effectively turned subscription savings accounts into lottery tickets.

Of course, housing issues with strong public characteristics cannot be approached with simple buy-and-sell logic. Given the current market situation where suppliers hold price-setting power, leaving housing supply price decisions to the market is risky.

However, there are alternatives. The government is deliberately ignoring methods such as recapturing a significant portion of the price difference. A representative example is the 'bond bidding system.' This profit recapture system has already been institutionally verified. The recaptured profits can be used as resources for rental housing and other low-income housing support. This system was applied during the pre-sale of Pangyo New Town under the Participatory Government.

Experts point out that "the government’s policy to enable home ownership at prices much lower than market value is typical populism."

While imposing punitive holding and transaction taxes on multi-homeowners, the government’s policy intention to overlook speculation in the pre-sale market inevitably raises market suspicion.