[Practical Finance] Subscription Savings Account for Non-Homeowners? ... Debates on Cancellation and Futility Stir Up

Strict Perfect Score Requirements and Low Winning Rates
Clear Decline in Number of Cheongyak Savings Account Subscribers
Even Winners Face Financial Concerns Due to High Sale Prices

"Should I cancel my subscription savings account for housing?"

More and more non-homeowners are considering canceling their subscription savings accounts for housing, which are intended to help ordinary citizens purchase their own homes. This is because the number of applicants with perfect scores is increasing, making the chances of winning increasingly slim, and even if one wins, the sale prices have soared to levels that are difficult to afford. Although some hope for special supply or lottery allocations, the competition rates for these are also fierce. Recently, when news emerged about raising the monthly payment recognition limit for subscription savings accounts from 100,000 KRW to 250,000 KRW, existing subscribers have been worried that their score rankings might be pushed back, leading them to contemplate whether to cancel their accounts.

Subscription Savings Accounts for Housing: Attractive but with Decreasing Winning Chances

According to the Korea Real Estate Board on the 28th, as of the end of last month, the number of subscribers to the Housing Subscription Comprehensive Savings was 25,489,863, a decrease of 16,526 from the previous month (25,506,389). Compared to the previous year, it decreased by 347,430. The number of first-priority subscribers was 16,682,779, down by 52,800 compared to June and sharply down by 467,400 compared to a year ago.

The number of subscription savings account holders decreased for 19 consecutive months from July 2022 to January this year. After a brief increase over two months, the numbers clearly declined again: 25,568,620 in March, 25,563,570 in April, 25,543,804 in May, 25,506,389 in June, and 25,489,863 in July.

As the chances of winning decreased, the number of subscription savings account holders also declined. In the past, parents hurried to open subscription savings accounts for their minor children as soon as possible, which led to an increase in the number of subscribers. Although the subscription period before the age of 19 is not fully recognized, so there is no need to rush, many still open accounts in preparation for the future.

However, simply opening a subscription savings account early does not guarantee reaching the perfect score of 84 points. To get 84 points, one must meet conditions such as having a non-homeowner period of over 15 years (32 points), a subscription savings account period of over 15 years (17 points), and having six or more dependents excluding oneself (35 points). In the case of dependents, if even one parent owns a home, neither parent is recognized. The non-homeowner period is calculated from age 30, so one must be middle-aged to get the full score. In other words, a perfect score requires a large family of seven people, including oneself, to have been non-homeowners for 15 years.

Because the conditions for a perfect score are strict, it draws attention when multiple perfect scorers appear in one complex. Recently, in the subscription results for ‘Raemian One Pentas’ in Banpo-dong, Seocho-gu, Seoul, three winners with perfect subscription savings accounts appeared. Except for one housing type, the minimum winning scores were all above 70 points. Due to suspicions of fraudulent applications, including false residence registration, the government has decided to launch an investigation.

Concerns Over Funding After Winning... Monthly Payment Fairness Issue Resolved for Now

High sale prices are also a factor causing people to cancel or avoid opening subscription savings accounts. According to the Housing and Urban Guarantee Corporation (HUG), last month the average sale price of private apartments in Seoul was 44,017,000 KRW per 3.3㎡, meaning the sale price for an 84㎡ unit easily exceeds 1.4 billion KRW. Since this is an average, many complexes are even more expensive depending on location and preference. Even if one is lucky enough to win, they cannot help but worry about funding. When the second phase of the Debt Service Ratio (DSR) system is implemented next month, mortgage loan limits will be reduced, making funding even more difficult.

The theory that subscription savings accounts are useless seems to be spreading for the time being. In Seoul and other areas, housing supply is decreasing, leading many to turn to existing apartment sales, and complexes considered ‘lottery sales’ when comparing future value or surrounding market prices are gradually decreasing. Ham Young-jin, head of the Real Estate Research Lab at Woori Bank, said, "Lottery sales are a relative concept, but the sale prices themselves have risen significantly," adding, "Many people think there is no need to tie up a large sum of money in subscription savings accounts unless their score is close to perfect."

Recently, fairness issues have been raised regarding the increase in the monthly payment recognition limit for subscription savings accounts from 100,000 KRW to 250,000 KRW. This is according to the partial amendment to the ‘Housing Supply Regulations’ that was announced for legislative notice until the 26th. The monthly payment limit, which has been maintained since 1983, will change for the first time in 41 years. However, concerns have arisen that those who prepaid will not benefit from the new limit due to computer system issues.

Especially for public supply, winners are selected based on the total recognized payment amount, so even a difference of 100,000 KRW can affect winning chances. From next month, someone who saves 250,000 KRW monthly for five years will be recognized for 9 million KRW more than someone who prepaid 10 months’ worth of payments for five years. The government plans to ensure that those who prepaid will not be disadvantaged. A Ministry of Land, Infrastructure and Transport official said, "There are technical issues such as bank computer systems, but we will not discriminate against or exclude those who prepaid," adding, "We are working to resolve the problem."