61,312 Apartments Scheduled for Sale in November
Concerns Over Further Increase in Unsold Units
Widespread Contract Cancellations Nationwide
Unsold Housing Nationwide Surges 84% from December Last Year to August This Year
[Asia Economy Reporter Kim Min-young] Concerns are growing that the scale of unsold apartments will increase further due to the accumulation of supply as construction companies push to sell their inventory by the end of the year. Although the government recently introduced measures such as extending the deadline for disposing of existing homes for successful applicants and expanding guarantees for interim payment loans, it is believed that reversing the sluggish atmosphere in the apartment market, where contract cancellations are rampant, will not be easy. There are also calls for additional measures such as acquisition tax reductions and capital gains tax exemptions to resolve the unsold housing issue.
According to Real Estate R114 on the 2nd, the number of apartments scheduled for sale this month is 61,312 units (including rental) across 89 locations nationwide. This planned supply is the highest for November since 2015. It is more than double compared to the same month last year (30,413 units).
The market is concerned that with the cooling enthusiasm for subscription, the volume of unsold units may only increase. In fact, cases of contract cancellations are being detected nationwide. According to Korea Land & Housing Corporation (LH), last month’s public subscription for general supply (1st and 2nd priority) at LH Incheon Yeongjong A60 Block saw only 57 applications for 659 units, resulting in undersubscription. In the special supply targeting newlyweds, first-time homebuyers, and multi-child families, only 16 applications were received for 573 units. The highest sale price for an 84㎡ unit in this complex was 391.53 million KRW, supplied at a price lower than the surrounding market due to the price ceiling system.
Yeongjong Hillstate, with the same floor area, was traded last month at 450 million KRW. The ‘Indeokwon Xi SK View’ in Uiwang City, Gyeonggi Province, which held an unranked subscription for 508 units, attracted only six applicants, and in Anyang City, Gyeonggi Province, 111 out of 178 units at ‘Pyeongchon Doosan We've The Prime’ were canceled. In the past, subscriptions were even called a ‘lottery’ because buyers could secure homes below market price and make profits of hundreds of millions of KRW, but the atmosphere has completely changed in just one year.
The cooling sentiment in the subscription market is also confirmed by statistics. According to the Ministry of Land, Infrastructure and Transport, the number of unsold houses nationwide surged 84.8% from 17,710 units in December last year to 32,722 units in August this year. During the same period, unsold houses in the metropolitan area more than doubled from 1,509 units to 5,012 units.
Ham Young-jin, head of the Zigbang Big Data Lab, said, "The new apartment move-in market is expected to continue a cold atmosphere for the time being due to delayed move-ins and premium declines, resulting in a lack of transactions."
When unsold units accumulate, construction companies’ cash recovery is delayed, which can further worsen their financial conditions. Since the project financing (PF) default fears triggered by Legoland are spreading throughout the market, unsold units can amplify these risks. This is why the government announced measures on the 27th of last month through the Emergency Economic and Livelihood Meeting, including extending the deadline for disposing of existing homes for successful applicants and expanding guarantees for interim payment loans. However, there are criticisms that these government measures are insufficient to thaw the frozen purchasing sentiment of buyers. Many buyers judge that the interest burden they must pay monthly outweighs the benefits, given falling prices of existing homes and uncertain future housing price prospects.
There are also calls to reduce tax burdens such as acquisition tax and capital gains tax to resolve the current stock of unsold units. During the Lee Myung-bak administration, when the unsold housing problem was severe, measures such as acquisition tax reductions and five-year capital gains tax exemptions were implemented.
Seo Jin-hyung, co-representative of the Fair Housing Forum and professor of MD Product Planning and Business at Gyeongin Women's University, said, "Tax regulations such as acquisition tax and capital gains tax should be eased to reduce the burden on buyers entering the subscription market," adding, "Additional incentives must be presented to revive buying demand in the subscription market."
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