[Insight & Opinion] Will the "Three-Legged Race" of Unsold Units and Public Sale Expansion Succeed?

Since September this year, unsold housing units nationwide have sharply increased, reaching a cumulative total of 47,000 units by the end of October. This is more than double the 22,000 units recorded at the beginning of the year. Typically, when unsold units exceed 40,000, it accounts for over 10% of the nationwide supply, which is considered a warning sign. This warning signal appeared from September and continued into October.

Unsold units began to increase from December last year, and considering construction periods of three years, completion is expected by December 2024. The rise in unsold units after completion will likely start from that time. We experienced the construction industry's downturn during the expansion of unsold units after completion between 2008 and 2011. Probably, before the end of 2024, the government’s major goal will be to ease regulations and revive the market to stimulate the construction industry.

With the increase in unsold units since September, cash flow problems have arisen for housing supply entities, leading to project financing (PF) risks. Concerned about the risk of this escalating into a financial and economic crisis, Deputy Prime Minister for Economy Choo Kyung-ho took the initiative to intervene. The background for easing regulations includes raising the mid-payment loan approval threshold from a sale price of 900 million KRW to 1.2 billion KRW, allowing a loan-to-value ratio (LTV) of up to 50% for housing loans exceeding 1.5 billion KRW, and, most importantly, lifting adjustment area designations for all regions except four areas in Seoul and Gyeonggi Province.

The Ministry of Land, Infrastructure and Transport (MOLIT) has also introduced various deregulation policies in line with this. These include easing reconstruction regulations and reforming the subscription system. At the same time, they announced an expansion of public housing supply to supplement the shrinking private sector housing supply. These are the core contents of the housing policies announced on October 26 and 27.

In the October 26 measures, MOLIT declared a target of 500,000 public sale housing units. This is a revival of the “public sale” card, which had effectively disappeared since the Lee Myung-bak administration’s “Bogeumjari” housing program. Compared to the previous administration’s total of 150,000 public sale units over five years, this new target is more than three times larger at 500,000 units. The supply method is not only through low prices at 80% of surrounding market prices but also introduces new types such as a mixed mortgage with low interest rates around 1% at 70% of the price, and a model where residents live for five years before converting to ownership, heralding a new era of public sale housing.

However, such deregulation related to sales and the expansion of 500,000 public sale units could raise prices for private sale housing, potentially increasing unsold units during this period of weak housing demand. The supply of affordable and attractive homes like public sale units may further weaken demand for private sales, leading to a phenomenon where only public sale housing gains popularity. This is why these policies are simultaneously evaluated as potentially expanding private unsold units. Ultimately, the results will be known once all policies are implemented. However, between 2008 and 2012, we witnessed the outcomes of MB’s Bogeumjari housing policy. History repeats itself. The difference lies only in whether it is a comedy or a tragedy. It is quite intriguing to consider how today will be recorded in the future.

Chae Sang-wook, CEO of Forcommas