[Insight & Opinion] In the Midst of Subscription Market Polarization

Subscription Market Polarization Intensifies
Unsold Housing Increases 2.5 Times in Non-Metropolitan Areas
Government's Regulatory Easing Raises Concerns Over Regional Imbalance

Since the government's relaxation of subscription regulations earlier this year, the subscription market has been recovering. So, is the subscription market currently booming?

The reason the market is interested in subscriptions is relatively simple. First, to acquire a pre-sale right through subscription, only 10% of the total housing funds need to be paid. This amount is closer to being less than the gap investment, which involves purchasing an existing home with a jeonse (long-term deposit lease). It is also less burdensome than the 30% equity capital required to purchase an existing home for primary residence. The low capital requirement creates an environment where the subscription market can gain popularity. Additionally, there is no acquisition tax (1-3%) initially, and some places even offer interest-free interim payments.

Second, the government has eased regulations to expand demand. From September to October and November last year, and again in January this year, subscription regulations were significantly relaxed four times. In an extreme move, the government allowed the resale of pre-sale rights, effectively permitting investment demand inflow by enabling sales before completion. Furthermore, the restrictions on subscription eligibility were eased so that not only non-homeowners but also homeowners, multi-homeowners, and household members can all participate, which has expanded the pool of demanders.

So, is the subscription market booming, and has the unsold housing crisis disappeared? To conclude, the current subscription market is in a typical state of polarization, and market distortions are intensifying. First, regarding unsold housing, which was the basis for easing subscription regulations, the number increased by 40,000 units from 32,000 units in August last year to 72,000 units as of March this year. While it is true that some subscription results in the metropolitan area have been successful due to regulatory relaxation, the actual unsold housing statistics show an increase of 40,000 units during that period.

Then, where are the unsold units coming from? The answer is non-metropolitan regions and high-priced areas within the metropolitan area. Unsold housing in non-metropolitan areas is the biggest cause of the increase. According to data released by Real Estate 114, among 34 pre-sale complexes nationwide in the first quarter, 13 complexes (38.2%) completed subscriptions within the first or second priority, while 21 complexes failed to fill the number of units even in the second priority, resulting in an unsold housing ratio of 61.8% by the number of complexes. Compared to 21 unsold complexes (24.1%) out of 87 complexes in the first quarter of last year, this represents an increase of up to 2.5 times. Despite the number of complexes in the first quarter of this year decreasing to about 40% of last year's, unsold housing increased more than 2.5 times, indicating that the pre-sale market is in a very poor condition. Especially among these unsold units, six regions?Daegu, Gyeongbuk, Jeonnam, Jeonbuk, Jeju, and Chungnam?showed undersubscription in all first-quarter sales, clearly revealing polarization in the pre-sale market.

The impact of unsold housing is likely to burden our economy with a time lag. Over time, current unsold units may become malignant unsold units after completion, which will expand into construction companies' risk of responsible completion. Moreover, if developers with projects in provincial areas face worsening financial difficulties, this could affect interest rates and growth rates. Was the government's effort to resolve the unsold housing issue only aimed at solving the Seoul unsold housing problem represented by Dunchon Jugong? It is time to reflect on whether the policy to ensure the success of Dunchon Jugong's pre-sale inadvertently caused the expansion of unsold housing in provincial areas.