[The Editors' Verdict] The "April Crisis Theory" Is Not Over Yet

The number of apartments with lights turned off nationwide has increased. This means that there are more unsold apartments that have been listed but have yet to find owners.

According to government statistics, the number of unsold apartments across the country is counted at 64,874 units (Ministry of Land, Infrastructure and Transport, February). Unsold apartments, which began to increase from November last year, exceeded 60,000 units in December of the same year. This surpasses the five-year average (43,000 units) from 2017 to 2021 before the base interest rate hike.

When unsold apartments exceed 60,000 units, the government starts paying attention to market changes. They consider demand stimulation measures such as easing the Debt Service Ratio (DSR) regulation to the level of limiting the Debt-to-Income ratio (DTI), or strengthening support for long-term, low-interest housing purchase loans (Hwang Gwansuk, Deputy Research Fellow at the Korea Research Institute for Human Settlements, January 2024).

The industry views the situation as more serious. The "100,000 unsold units theory" is frequently heard. Considering that unsold statistics are compiled based on survey responses from institutions, and it is customary to underreport by about 30-50% (Seminar on Activation Measures for Unsold Housing REITs for Housing Market Stability, July 2023), it is expected that the actual number of unsold units has exceeded 100,000.

Recent government responses add weight to these speculations. Although government statistics show unsold units barely exceeding 60,000, they have introduced countermeasures (Construction Industry Recovery Support Measures, March) including tax benefits to encourage the purchase of unsold apartments. The government plans to launch corporate restructuring (CR) REITs that will purchase unsold units within the year and decided not to apply acquisition tax surcharges to CR REITs purchasing unsold housing after local completion. They also decided to exclude these acquisitions from the comprehensive real estate tax consolidation for five years. If acquisition tax surcharges were applied, the rate would be 12%, but excluding the surcharge lowers the acquisition tax to 1% for houses priced under 600 million KRW, which includes a significant portion of local unsold units.

These policies are typically expected only when unsold units exceed 100,000. When surpassing 100,000 units, unsold apartments are judged to pose a risk to our economy, and efforts to reduce unsold inventory are intensified. Tax benefits are granted for home purchases, and purchase-and-lease businesses and REITs are activated (Korea Research Institute for Human Settlements).

Despite the 'mismatch' between government statistics and policies, the government's proactive approach to break the chain of accumulated unsold units indicates agreement with the industry's view on the seriousness of unsold apartments. The accumulation of unsold units accelerates the PF crisis. Construction companies that have provided credit enhancements such as guaranteed completion in PF projects must complete construction regardless of unsold status, even if it means borrowing. This leads to a rapid increase in construction company debt and, depending on the situation, can result in a chain of bankruptcies among construction firms and financial sector insolvencies, creating a vicious cycle.

The ball is now in the 22nd National Assembly's court. In Yeouido, there may be resistance to helping construction companies that caused unsold units due to high pre-sale prices. However, if one turns their head and looks at how many unsold apartments exist in their constituencies, forming a consensus with the government does not seem difficult. It is also possible to consider measures to hold parties accountable after rescue.

This month is heading toward its final phase, but the "April crisis theory," which predicts a crisis in the construction industry due to PF insolvency after the general election, has not yet ended. It is time to remember that unless the fuse of apartments with lights turned off is resolved, the problem will only be indefinitely postponed.