[Ryu Taemin's Real Estate A to Z] Heated Private Rental Apartments... Any Issues with Sale Conversion?

Strong Subscription Fever for Sale Apartments from Metropolitan Area to Provinces
Triple-Digit Competition Rates for Lotte Castle HiveL and Moa Elga Vista
No Separate Standard for Sale Price Calculation... High Price Warning
Some Complexes Do Not Guarantee Priority for Residents in Sale Conversion

[Asia Economy Reporter Ryu Tae-min] Recently, as both apartment sale prices and jeonse (long-term lease) prices have soared to unprecedented heights, the demand for private rental apartments has significantly increased. These apartments have been recording triple-digit competition rates comparable to popular pre-sale apartments. This is because they are relatively cheaper than general sale or jeonse prices and offer the advantage of stable residence for a certain period before the option to convert to ownership. However, unlike typical public rental apartments, private rentals do not have separately established standards for calculating the sale price, and many complexes have uncertain prospects regarding the conversion to ownership, so experts advise careful selection.

At the beginning of this month, the ‘Lotte Castle Hive L’ near Suji-gu Office Station in Yongin held a subscription for 715 units, attracting a total of 162,683 applicants, resulting in an average competition rate of 227 to 1. The number of applicants was so large that the sales website crashed on the day the winners were announced.

Earlier this year, the ‘Shin Asan Moa Elga Vista Phase 2’ in Asan, Chungnam, experienced a similar situation. With 998 units offered, it attracted 186,358 applications, recording an average competition rate of 186 to 1. Additionally, the ‘Peace Square Moa Elga Vista’ supplied earlier this year in Mokpo, Jeonnam, also closed subscriptions early with 217 units and 32,118 applications, resulting in a competition rate of 148 to 1.

Private rental apartments operate on a system where residents live on rent for a certain period before deciding whether to convert to ownership. They do not require a subscription savings account, and anyone can apply regardless of income restrictions or home ownership status. Since these are rental apartments, no separate acquisition tax or property tax is levied. As a result, some recently supplied private rental housing rights have been traded at premiums ranging from a few million to several tens of millions of Korean won immediately after pre-sale. This is due to expectations of profit if the sale price at conversion is lower than the market price, attracting not only actual users but also investors.

Uncertainty in Conversion and Sale Price... Beware of Risks

However, experts point out that private rentals carry risks regarding the sale price at the time of conversion. Current housing laws do not have specific regulations on how to calculate the sale price for private rental apartments at conversion. This means developers can set the sale price as they wish. For example, the contract for ‘Peace Square Moa Elga Vista,’ which completed online subscriptions last April, explicitly states that “the sale price at conversion will be determined by the lessor.”

There is also a possibility that conversion to ownership may not occur after the rental period ends. Similarly, there are no regulations mandating conversion. For instance, the contract for ‘Shin Asan Moa Elga Vista Phase 2,’ which completed subscriptions earlier this year, includes a clause stating that “the conversion to ownership is not confirmed.” The contract for ‘Sinnae Station City Pradium,’ which completed subscriptions in January, also states that “no priority right to conversion will be granted to tenants after the mandatory rental period ends.”

Choi Eun-young, director of the Korea Urban Research Institute, explained, “Unlike public rental apartments, private rentals do not have established regulations regarding sale prices, so construction companies can set them as high as they want. Especially during periods of rapid house price increases like now, conflicts related to this issue may intensify.”