[Practical Finance] Precautions for Reserved Land Sale Bidding and 'Jumjum' Subscription... Essential Funding Plan Required

Short-Term Funding Needed in Both Cases
Mortgage Loans Difficult in Reserved Land Sale Bids
'Jupjup' Subscription Allows Mortgage Loans but Watch DSR Regulations

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Seoyul] While bidding for reserved land sales and non-priority subscription offer the advantage of purchasing newly built homes at prices lower than market value, there are also precautions to be taken. In the case of reserved land sales, funds must be raised within a short period, so careful planning is necessary. In addition to paying the deposit at the time of bidding, the balance of the contract deposit, excluding the deposit amount, must usually be prepared within 10 days from the notification of winning the bid, and the remaining balance must be settled around 60 days thereafter.

For example, in the case of ‘Taereung Harrington Place’ in Gongneung-dong, Nowon-gu, Seoul, where the reserved land sale contract was completed on the 23rd, a bid deposit of 100 million KRW must be paid to participate in the bidding. Since the reserved land’s contract deposit amount is the same as the bid deposit, no separate contract deposit payment is required. If the contract deposit had been higher than the bid deposit, the difference between the contract deposit and the bid deposit would have to be paid within 6 days.

But it does not end there. Within 60 days from the contract date, a minimum of 830 million KRW (exclusive area 59A㎡) to a maximum of 1.2 billion KRW (84A㎡) must be prepared and paid by the deadline for the remaining balance. If the remaining balance is not prepared, a delay of up to 30 days (with an annual late fee of 18%) is possible, but if the delay period is exceeded, the contract will be canceled.

If the contract is canceled due to non-payment of the remaining balance, the bid deposit will be forfeited to the apartment association, posing a risk of losing the money. Typically, the bid deposit is about 10% of the winning bid amount. For reserved land that has not yet been registered with a preservation registration, it is difficult to obtain interim payment loans or mortgage loans. Therefore, bidding on reserved land should be considered only if short-term fund procurement is possible.

The ‘Jupjup’ subscription is relatively easier in terms of fund procurement compared to reserved land bidding because mortgage loans and interim payment loans can be obtained. However, according to the mortgage loan prohibition regulation included in the December 16, 2019 measures, even non-homeowners cannot receive mortgage loans for homes priced over 1.5 billion KRW. For complexes priced below 1.5 billion KRW, the strengthened Debt Service Ratio (DSR) loan regulations, which have applied from this year, affect not only interim payments but also final payment loans, making fund procurement more difficult. In the case of Jupjup subscription, if funds are not paid on time, the contract is canceled, but the principal amount of the contract deposit, excluding interest, can be refunded. However, if the housing supply is in a speculative overheating district or a subscription overheating area, there is a disadvantage of being restricted from re-winning housing subscriptions for 7 to 10 years.

This content was produced with the assistance of AI translation services.