[Beginner's Guide to Buying] Instead of Buying a House, Pay 'Half the Price'?… What Is a 'Toji Imdaebu Jutaek' (Land Leasehold Housing)?

'Land Owned by Public, Houses Sold Separately' Land Leasehold Housing
Land Prices Drop, Sale Prices at 'Half Price'

Half Price Naturally Sparks 'Lotto Sale' Controversy After a Few Years
Mandatory Repurchase Introduced to Prevent Lotto Sales

[Asia Economy Reporter Lee Chun-hee] When you become a real estate reporter, you sometimes get unexpected KakaoTalk messages from friends. "How do I apply for a housing subscription?" "What is first priority?" For the 2030 'Burin-i (Real Estate + Beginner)' who only have subscription savings accounts created by their parents when they were young, I am trying to create a guide.

With Byeon Chang-heum, President of Korea Land and Housing Corporation (LH), nominated as the Minister of Land, Infrastructure and Transport, there is a word that Burin-i hear every day recently. It is 'land leasehold housing.' This is because nominee Byeon has continuously advocated for the introduction of land leasehold housing as a solution to housing problems since his time as a professor of public administration at Sejong University. This is why the supply of land leasehold housing is likely to increase significantly in the future.

Today, let's learn about what kind of system this land leasehold housing is.

House Bought but Land Still Owned by Government? ... But Sale Price is 'Half'

'Umyun-dong, Seocho-gu, Seoul, LH Seocho Complex 5'
[Image source=Yonhap News]

When you buy or subscribe to an apartment, you may have heard about 'land share' at least once. Usually, when a building is constructed and traded, the transaction includes not only the building but also the land it is built on. If the person who holds the 'surface rights' (rights to the building) and the person who holds the 'land rights' (rights to the land) are different, conflicts of interest may arise when trading or rebuilding the building later, which can cause complicated situations.

So, how does this work for apartments? In cases like apartments or shopping complexes where a building is divided by units for trading, land rights are allocated as land shares according to the area of each unit.

Land leasehold housing is a system where the land rights of an apartment are held by public entities such as LH, and only the surface rights are sold to residents. Since the sale price usually includes the price of the land share, naturally, if only the surface rights are sold, the price will be lower. This creates a price reduction effect called the so-called 'half-price apartment.' However, since the buyer is renting the land, they must pay rent for it.

Popularity Drops Due to Burden of Not Owning Land... But 'Lotto Subscription' if Location is Good

Land leasehold housing has already been supplied several times. Starting in October 2007 in Bugok District, Gunpo City, Gyeonggi Province, land leasehold housing was supplied in three places including Seocho and Gangnam districts in Seoul.

However, various problems were raised, and supply did not continue for several years. The reasons why land leasehold housing is considered a failure vary by complex.

In Gunpo, it failed to attract demand and was largely undersubscribed in the first priority. Despite being smaller in scale and lacking infrastructure compared to other new towns in the metropolitan area, it was evaluated as having a poor location, and the land rent was as high as 400,000 KRW per month, which was considered a heavy burden. As a result, 92.4% remained unsold, and the housing was converted to general sale housing in 2009.

On the other hand, the land leasehold housing in Seocho-gu Umyeon-dong 'LH Seocho 5 Complex' and Gangnam-gu Jagok-dong 'LH Gangnam Breeze Hill' in Seoul failed to realize policy effects for the opposite reason. The sale price there was only in the low 200 million KRW range, about one-quarter of the surrounding market price at the time, and the land rent was also low at 300,000 to 400,000 KRW.

However, these complexes also initially suffered from the disadvantage of not owning the land and having to pay land rent, which limited their popularity. But after moving in, prices surged and demand increased sharply. Except for the land-related drawbacks, the apartment quality and location were very good, earning the evaluation of 'cost-effective apartments.'

This eventually led to a sharp rise in housing prices. In 2018, after the five-year resale restriction ended, prices jumped to around 800 million KRW. According to the industry, recently, LH Seocho 5 Complex's 59㎡ (exclusive area) was traded at 1.02 billion KRW, and 84㎡ at 1.25 billion KRW, while LH Gangnam Breeze Hill's 74㎡ was traded at 1.1 billion KRW, and 84㎡ at 1.33 billion KRW. Prices rose more than six times compared to the sale price. This inevitably sparked controversy as a 'lotto subscription' that gave buyers several hundred million KRW in capital gains.

Due to these issues, the 'Special Measures Act for Promoting the Supply of Land Leasehold Sale Housing' enacted in 2009 was abolished in 2015, and land leasehold housing came to be regarded as a 'failed policy.' The pilot project in Bucheon Ok-gil District was canceled altogether due to concerns about prolonged unsold units.

Is Reconstruction Possible? ... 'Mandatory Repurchase' Introduced to Prevent Capital Gains

President Moon Jae-in and Byun Chang-heum, nominee for Minister of Land, Infrastructure and Transport (current LH President), attended the "Desirable Rental Housing" briefing held on the morning of the 11th at the Dongtan public rental housing complex, commemorating 1 million LH rental homes in Hwaseong-si, Gyeonggi Province.
[Image source=Yonhap News]

One of the questions that arise when land leasehold housing is introduced is reconstruction. It is ambiguous how to handle the situation where the public owns the land and individuals own the buildings.

Regarding this, under the current Housing Act, the owner of the house is regarded as the land owner, and reconstruction can be done with the consent of the public landowner. The landowner cannot refuse consent without justifiable reasons. Also, reconstructed housing must, in principle, maintain the form of land leasehold sale housing. However, conversion to general housing is possible if the land and housing owners agree.

Ultimately, for land leasehold housing to be introduced in the way the government wants, measures to prevent excessive capital gains while supplying in key locations are necessary. To this end, nominee Byeon has advocated the introduction of 'mandatory repurchase' for land leasehold housing. This system requires buyers of land leasehold housing to sell to public institutions when they sell their homes.

Although nominee Byeon has not yet become minister, preparations for related systems are already progressing rapidly. On the 9th, the National Assembly passed a Housing Act amendment containing these provisions.

When this law is enforced, those who purchase land leasehold sale housing must apply to LH to repurchase if they want to transfer it. LH must purchase the housing unless there are special reasons. This provision is scheduled to be implemented from June next year and will apply to complexes that apply for resident recruitment approval for the first time after enforcement.