[9·26 Supply Measures] "Demand Sentiment Improved but Being Monitored Closely"

Q&A on 'Measures to Revitalize Housing Supply'

The government will supply an additional 120,000 public housing units to alleviate concerns about the housing supply shortage. This includes 30,000 units in the 3rd New Towns, 85,000 units on new public housing sites, and 5,000 units converted from private to public housing projects. Additionally, the resale restriction on apartment land will be relaxed for one year to ensure timely supply of public housing sites.

The scale of real estate project financing (PF) loan guarantees will increase from the existing 15 trillion won to 25 trillion won, and non-apartment projects such as row houses, multi-family houses, and officetels, which can be supplied in the short term, will be able to secure funding through guarantees from funds and the Construction Mutual Aid Association. The official price standard for small housing units considered as non-homeowners during subscription will be raised by 30 million won in the metropolitan area and 20 million won in other regions.

View of the surrounding apartments from the observatory of 63 Building in Yeouido, Seoul. / Photo by Hyunmin Kim kimhyun81@

On the 26th, the Ministry of Land, Infrastructure and Transport announced the "Housing Supply Activation Plan for National Housing Stability" jointly with related ministries.

Jin Hyun-hwan, Director of the Housing and Land Office at the Ministry of Land, Infrastructure and Transport, said at the government Sejong office on the day, "This measure focuses on resolving concerns about funding procurement, unsold units, and construction costs from the supplier's perspective," adding, "It is difficult to predict whether the market situation is in a major upward phase or a temporary and localized rise, so we are also sensitively monitoring the demand side."

Below is a Q&A with Director Jin Hyun-hwan.

- What is the background for expanding 30,000 units in the 3rd New Towns?

▲ We applied factors such as floor area ratio, self-sufficient land, and park green spaces. Currently, in places like Dongtan, Pangyo, and Wirye (2nd New Towns), the ratio of self-sufficient land is 4.7%, but in the 3rd New Towns, it is very high at 13.8%. Therefore, after consulting with the relevant local governments, we finalized 30,000 units based on completed details. Adjustments were made within various regulations and guidelines such as park green spaces and floor area ratio. The distribution of units by region is difficult to disclose, but considerations included the Metropolitan Area Express Train (GTX).

- What are the detailed plans for supplying a total of 120,000 public housing units?

▲ It consists of 30,000 units in metropolitan new towns, 5,000 units converted from private to public housing projects, and 85,000 units on new public housing sites. Initially, 65,000 units were planned for the new sites, but 20,000 units were added. Therefore, the newly increased number of units is 55,000. The announcement will be advanced to November. Most of the supply will be within 30 km of the metropolitan area. There may be districts with about 16,000 to 20,000 units or smaller areas. However, there will be no large-scale housing sites.

- I understand that the Korea Land and Housing Corporation (LH) has not reached agreements on increasing construction costs for private-participation public projects.

▲ LH seems to be cautious due to concerns about breach of trust. This measure includes the government's intention to resolve such issues and share risks reasonably between public and private sectors. Since the government has declared this stance, I expect negotiations to proceed more smoothly in the future.

- The biggest problem is the shortage of private supply in Seoul. Prices in Gangbuk continue to rise, while Gangnam delays sales. Can this measure ease the current trend?

▲ Only the Gangnam 3 districts (Gangnam, Seocho, Songpa) and Yongsan district are subject to price regulations, and prices are rising as those areas adjust prices autonomously. The Ministry of Land, Infrastructure and Transport is monitoring price increases, but ultimately it is a matter of supply and demand. It does not seem appropriate for the ministry to intervene directly in price-autonomous areas. Gangnam may have complex issues such as regulations and project costs, but fundamentally it is a matter for the developers to decide. Due to the impact of rental fraud this year, non-apartment supply has decreased significantly, so we are considering supplementing by increasing supply of small housing units other than apartments.

- The official price of small housing units considered as non-homeowners during subscription is up to 160 million won in the metropolitan area. What is the approximate market price?

▲ It is about 240 million won.

- Do you think the timing of the housing supply measures matches market expectations?

▲ As I mentioned earlier, leading supply indicators are not good. Currently, about 190,000 units are under approval, and about 331,000 units were approved last year but have not started construction by the first half of this year, totaling about 520,000 units. The core of this measure is to support these units to get on a normal track.

- Can the policy be effective amid macroeconomic uncertainties?

▲ We expect that sufficient supply financing will help the backlog of approvals and construction to proceed quickly. The industry demands resolution of unsold units, but many difficulties are related to financing. Therefore, we recognize the necessity together with financial institutions and aim to ensure that financing issues do not block supply for proper projects.

- Can the goal of 470,000 approvals this year be achieved?

▲ There are only four months left until the end of the year. As of August, about 210,000 units have been approved. We will focus on achieving the goal as much as possible, and any shortfall will be combined with next year's plan to supply over 1 million units.

- Some may hold land without developing due to poor profitability. Will relaxing resale restrictions be effective?

▲ Sometimes projects are not pursued due to lack of profitability, but in cases where land was acquired from LH by bidding, if the full payment or construction cost financing is not available, they hesitate to proceed. If financially capable companies take over, projects may resume faster.

- Do you have actual data on such companies?

▲ I cannot specify exactly, but LH has about 420 billion won in overdue payments from land recipients. Those with significant overdue amounts may be the target.

- The supply measures are good, but ultimately there must be demand. What do you think about demand stimulation measures?

▲ Considering buyer sentiment indices and the decrease in unsold units, the business environment for demand is improving considerably. However, the supply side is tied up with issues of funding, disputes, and procedures. From our perspective, it is not that projects are abandoned due to unsold units, but rather concerns about whether bridge loans can transition to PF loans and whether loans will be approved.

- Is there evidence that demand sentiment will continue like this?

▲ Monthly indices show improvement. Although sales have decreased, unsold units have also continuously declined. It appears that concerns are more about financing for normal projects than about lack of demand or unsold units.

- This year, demand was boosted by policies such as special public housing. Was this taken into account?

▲ All such aspects were considered. Currently, interest rates are quite high, but with the base rate frozen for a while, it feels relatively lower. We judged that artificially stimulating the market is not appropriate, so special public housing requirements were strengthened, and this measure was designed considering that. Earlier in January, many regulations were eased to normalize demand. The government does not currently hold regulations to loosen further for demand stimulation. We continue to monitor housing prices, and these measures will be implemented within a month as soon as possible.