[Real Estate AtoZ] "Apartment Sales in Icheon, Gyeonggi-do Delayed by 6 More Months, Why?"

Impact of Unsold Housing Management Areas in 9 Locations Including Icheon, Gyeonggi and Nam-gu, Daegu
Project May Be Delayed by 6 Months Due to Pre-Screening for Sale Guarantees
Criteria for Selecting Unsold Housing Management Areas ▲ Increase in Unsold Units
▲ Poor Resolution of Unsold Units ▲ Concerns Over Unsold Units

Apartment buildings in downtown Seoul.
Photo by Yonhap News

This month, Icheon in Gyeonggi Province has been designated as a non-sale management area, resulting in apartment sales schedules in this region being delayed by up to six months. In non-sale management areas, a preliminary review is conducted when applying for sales guarantees, inevitably causing delays in sales schedules. Developers planning to launch apartment sales in this area face unavoidable disruptions to their plans.

Non-sale Management Areas: 9 Locations Including Gyeonggi Icheon and Daegu Nam-gu; Potential Project Delays if Preliminary Sales Guarantee Review Is 'Insufficient'

The Housing and Urban Guarantee Corporation (HUG) announced the selection of the 91st batch of non-sale management areas on the 5th. With the addition of Gyeonggi Icheon as a non-sale management area, a total of nine regions have been designated. The eight regions of Gyeonggi Anseong, Chungbuk Eumseong, Gangwon Gangneung, Gyeongbuk Pohang and Gyeongju, Jeonnam Gwangyang, Ulsan Ulju, and Daegu Nam-gu have remained non-sale management areas this month, continuing from last month.

Housing developers face delays of up to six months in the application process for resident recruitment approval (sales) in non-sale management areas. To obtain resident recruitment approval, a sales guarantee is required, which ensures the fulfillment of sales or refund of sales payments to prospective residents in case of project suspension. In non-sale management areas, a separate preliminary review must be conducted for guarantee screening. Particularly, if a project within the area is judged as an 'insufficient project' in the preliminary review, it must undergo the review again. This inevitably extends the period until sales.

If a housing developer has purchased land and the area is designated as a non-sale management area, they must apply for a preliminary review to receive a sales guarantee. The addition of this procedure lengthens the overall project duration and may increase costs.

The preliminary review is a measure to reduce housing sales volume within the region and resolve unsold inventory. HUG conducts the preliminary review based on criteria such as location suitability, regional demand, transaction activity level, and the developer's project execution capability. A HUG official stated, "If the preliminary review results are poor, such as being classified as an 'insufficient project,' the project may be delayed due to additional review processes." However, they explained, "We aim to standardize the preliminary review criteria to expedite guarantee screening for projects."

Projects that fall under one of seven categories, such as rental housing projects without mixed sales and rentals or post-sale projects where sales occur after achieving a construction progress rate of 60% or more, are exempt from the preliminary review. Additionally, projects that received sales guarantees before being designated as non-sale management areas do not need to undergo separate procedures like preliminary reviews after the designation.

Criteria for Designating Non-sale Management Areas...

Non-sale management areas are selected based on one of the following: ▲ increase in unsold units ▲ poor resolution of unsold units ▲ concerns about unsold units. The criteria apply to cities, counties, or districts with 1,000 or more unsold units and where the ratio of unsold units to total apartment inventory is 2% or higher.

Areas with increasing unsold units are those where the number of unsold units increased by 50% or more compared to the previous month in any of the last three months. Gyeonggi Icheon, newly designated as a non-sale management area this month, is the only area with increasing unsold units.

Areas with poor resolution of unsold units are those where the number of unsold units in the relevant month is twice or more the monthly average over the past year, or where the number of unsold units in the last three months is 1,000 or more and the decrease rate compared to the previous month is less than 10%. Eight areas including Gyeonggi Anseong and Daegu Nam-gu, excluding Icheon, fall under this category.

Apartment complex in Gayang-dong. Photo by Yongjun Cho jun21@

Areas with concerns about unsold units are determined based on whether the number of permits issued in the relevant month increased by 50% or more compared to the previous month in any of the last three months, or if the number of permits issued in the relevant month is twice or more the monthly average over the past year. Additionally, these areas are designated if the number of unsold units in the last three months increased by 30% or more compared to the previous month, or if the number of unsold units in the relevant month is 1.5 times or more the monthly average over the past year.

In February last year, HUG removed the 'monitoring required' criterion from the selection requirements for non-sale management areas. This was a response to the slowdown in new apartment supply outside major cities like Seoul due to growing concerns about unsold units in provincial areas. Being designated as a non-sale management area under 'monitoring required' previously meant a minimum designation period of two months.

A HUG official said, "'Monitoring required' areas had to remain designated as non-sale management areas for at least two months even if unsold units were resolved, requiring preliminary sales guarantee reviews. Due to the market downturn last year, we changed the policy so that once unsold units are partially resolved, the area can be removed from the non-sale management designation immediately, allowing sales guarantees without preliminary reviews."

Meanwhile, HUG selects and announces non-sale management areas monthly. According to the Ministry of Land, Infrastructure and Transport, as of June, the total number of unsold houses nationwide was 74,037 units, a 2.6% increase from the previous month (72,129 units). Additionally, the so-called 'malignant unsold units'?unsold units after completion?rose by 12.3% to 14,856 units in June from 13,230 units in the previous month.