Purchasing Unsold Apartments in Provincial Areas
Operating as Rentals and Selling for Profit
A real estate investment company has emerged that purchases unsold apartments in provincial areas and operates them as rental properties to generate profit. This comes about a year after the government announced its plan in March of last year. There is growing interest in whether this move will help revive the stagnant regional construction market.
The Ministry of Land, Infrastructure and Transport announced on the 21st that it had approved the "JBYSK No.2 Corporate Restructuring Real Estate Investment Company (CR REIT)," established last month by JB Asset Management. Since the second half of last year, some financial institutions have been exploring the establishment of such REITs, but this is the first company to actually receive regulatory approval. A ministry official stated, "It took some time to negotiate specific details such as the purchase price and project financing (PF) interest rates," adding, "Other REITs that have also applied are expected to be approved in the near future."
Exterior of a model apartment for sale in Seoul, built on a site in Goyang, Gyeonggi Province. Photo by Yonhap News
This REIT by JB Asset Management plans to purchase 288 units of the Suseong Lake Woobang IU Shell apartment complex in Daegu. The company reported that it would first operate the units as long-term rentals and then sell them off and liquidate the REIT depending on market conditions. Although the specific timing of the sale was not disclosed, considering that real estate investment companies typically operate in three- or five-year terms, a similar timeframe is expected.
This apartment complex was launched for sale in October 2021 and began occupancy in March of last year. It consists mainly of small to medium-sized units, with a total of 394 apartments featuring exclusive areas of 59 square meters and 84 square meters (types A to C). Given the scale of the purchase by the REIT, a significant portion of the units remained unsold by the time of occupancy, leading the complex to be classified as a "problematic" unsold property. As of the end of February this year, the number of unsold apartments in Suseong District, Daegu, reached 1,092 units.
As the number of unsold apartments has increased, particularly in provincial areas, and the construction market has experienced a clear downturn, the government has moved to provide indirect support through CR REITs. However, negotiations over purchase prices and other issues have reportedly been challenging due to concerns about fairness with existing buyers. CR REITs were first introduced in 2008 during the global financial crisis, and as the problem of unsold apartments in provincial areas has become more severe in recent years, the government has decided to revive the system.
JB Asset Management's CR REIT is expected to begin purchasing apartments as early as next month. The decision on whether to approve additional CR REITs is also expected soon. A ministry official stated, "If the currently applied REITs are approved, it is expected that a total of around 2,000 unsold apartments could be purchased."
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