[Unsold Housing Urgent Diagnosis] ① 40,000 Units Surge in 6 Months... Growing Concerns Over Construction Company Bankruptcies

Last Year, Total Unsold Housing Units Increased by 50,397
Recorded Double-Digit Growth Rate for Four Consecutive Months Since September

Editor's Note'Unsold housing fear' is spreading. Over the past year, numerous housing complexes have failed to meet subscription targets, bringing the number of unsold houses close to 70,000 units. In January, 8 out of 11 complexes that went on sale failed to attract subscriptions. As the perception that "sale equals unsold" spreads, developers and construction companies are reluctant to proceed with projects. Industry experts warn that if the current trend continues, the number of unsold houses could surpass the 'extreme danger level' of 100,000 units as early as the first half of the year, or at the latest within the year. If the unsold housing issue is not resolved and prolongs, there is even a possibility that the construction industry could face a wave of bankruptcies, starting with small and medium-sized local construction companies that fail to recover project costs.

[Asia Economy Reporter Cha Wanyong] The number of unsold houses is rapidly increasing. As of the end of December last year, the recorded number of unsold houses was 68,107 units. This far exceeds the government's 'unsold risk threshold' of 62,000 units. Although this number is smaller compared to the all-time high of 165,641 units recorded in March 2009 right after the financial crisis, the speed of increase is alarming, with more than 40,000 units added in just half a year.

Apartment complexes and construction sites in Seoul city. [Image source=Yonhap News]

Increase of 40,197 Units in 6 Months, Largest Since Unsold Housing Tracking Began

On the 14th, Asia Economy analyzed the Ministry of Land, Infrastructure and Transport's unsold housing status report and found that the total increase in unsold houses last year was 50,397 units (from 17,710 units in December 2021 to 68,107 units). Of these, 40,197 units were added in the second half of the year (July to December) over six months. This half-year increase rate is the highest since the government began tracking unsold housing in 1993.

Even during the foreign exchange crisis (1997?1998) and the global financial crisis (2008?2009), when unsold houses exceeded 100,000 units, such a sharp surge was not observed. The highest annual increase in unsold houses was from December 2007 to December 2008, with 52,518 units added (from 111,366 to 163,884 units), but this showed a steady monthly increase pattern. The same applies to the period from December 1994 (105,506 units) to December 1995 (152,313 units), when 46,807 units were added.

The bigger problem is that the number of unsold houses has been accelerating recently. In November last year alone, 10,810 units were added, followed by another 10,080 units in December, marking two consecutive months with increases exceeding 10,000 units. The growth rates were also double-digit for four consecutive months: 27.1% in September, 13.5% in October, 22.9% in November, and 17.4% in December.

Projections of 100,000 Units as Early as First Half or by Year-End

Unsold houses are increasing faster in local regions than in Seoul and the metropolitan area. As of December last year, unsold houses in local areas numbered 57,072 units, a 19.8% increase from the previous month. In the metropolitan area, the figure was 11,035 units, up 6.4% from the previous month.

The number of unsold houses in Seoul is not large overall, but the growth rate is steep. In December last year, Seoul had 953 unsold units, a 10.2% increase from the previous month. Considering that there were only 54 units in December 2021, this is a noticeable rise.

The ongoing transaction freeze due to rapid interest rate hikes and market stagnation is also contributing to the increase in unsold houses. In December, housing sales transactions were 28,603, down 46.8% from December of the previous year. The cumulative housing sales volume last year was 508,790, a 49.9% decrease from the previous year. Annual housing sales were 1,279,000 units in 2020 and 1,015,000 units in 2021.

Experts predict that the number of unsold houses will reach 100,000 units as early as the first half of this year or by the end of the year at the latest. Lee Kwangsoo, a research fellow at Mirae Asset Securities, said in a recent report, "There is a high possibility that unsold apartments will increase due to the initial decline in subscription rates," adding, "Unsold apartments could increase to 90,000 units this year and may rise to 110,000 units depending on the degree of market contraction."

Han Mundo, adjunct professor at Yonsei University's Graduate School of Political Economy specializing in Finance and Real Estate, said, "If you combine the 50,000 units postponed last year with the 100,000 units planned for sale this year, the total exceeds 150,000 units," and predicted, "Even applying a halved subscription rate, when combined with existing unsold units, the number will surpass 100,000 units in the first half of the year."

Meanwhile, interpretations of the seriousness of the rapid increase in unsold houses differ between the construction industry and the government. The construction industry warns that without government intervention, a wave of bankruptcies centered on small and medium-sized local construction companies could occur. On the other hand, the government maintains that the situation is not yet at a severe stage of 'malignant unsold housing,' meaning unsold units after completion. As of December last year, nationwide post-completion unsold houses numbered 7,518 units, almost the same as a year earlier (7,449 units). This is about one-seventh of the record high of 51,796 units in March 2009.

However, the construction industry points out that although malignant unsold units are currently few, if the recent trend continues, they could increase rapidly. While only general unsold units are increasing now, as more projects complete construction, malignant unsold units are expected to rise sharply within 2 to 3 years.