"Even 50% Is a Lifeline"... Construction and Real Estate Sectors Find Relief in Government Unsold Apartment Purchases

Repurchase-Conditioned Purchase of Unsold Apartments Revived After 12 Years
"Effective in the Past as Well"... Industry Welcomes the Move
REITs Sector Cheers: "First Time REITs Budget Included in Supplementary Plan"

After the government announced its plan to purchase unsold apartments in provincial areas after completion through a supplementary budget, the construction industry welcomed the move, calling it a "practical measure that can be felt on the ground." Small and medium-sized construction companies, struggling with a credit crunch, are expected to gain some breathing room through the emergency liquidity supply. However, industry experts advised that "fundamental measures to stimulate demand are still needed" to truly revive the sluggish provincial housing market.

According to the construction and real estate industry on June 22, organizations under the Ministry of Land, Infrastructure and Transport?including the Construction Association of Korea, Korea Housing Builders Association, Korea Housing Association, Korea Association of Real Estate Development, and Korea REITs Association?recently issued statements welcoming the supplementary budget measures, describing them as "timely relief for an industry suffering from a liquidity crisis."

On June 19, the Ministry of Land, Infrastructure and Transport announced plans to inject 800 billion won in government funds through the supplementary budget to ease the project financing (PF) market’s liquidity crunch. By leveraging private capital and policy finance, the government aims to provide a total of 5.4 trillion won in liquidity to the market.

The ministry introduced separate measures for each stage of the project: for the land acquisition stage, it will launch the "PF Advancement Seed Anchor REITs"; for the main PF stage, it will establish special guarantees for small and medium-sized construction firms; and for the unsold apartment issue, the Housing and Urban Guarantee Corporation (HUG) will purchase 10,000 unsold provincial units before completion over the next three years at half the pre-sale price, under repurchase agreements.

Conditional Support via Repurchase and REITs... Industry Responds Positively to Government Measures

Lee Moosong, Director of New Business at the Construction Association of Korea, described the repurchase policy for unsold units before completion as "a support measure that enables construction companies to survive and endure." He explained, "Unsold units represent the greatest burden for the industry, as companies must cover construction and financing costs themselves even when sales have not occurred. This measure can at least temporarily alleviate that burden." He added, "Government funds are being used temporarily, but since the units will be repurchased, the public sector’s role remains limited."

Kim Jongun, Director of Policy Management at the Korea Housing Builders Association, also commented on the liquidity crisis in the construction industry, stating, "The policy to purchase unsold units is the most timely measure." He noted, "During 2008?2013, the repurchase policy for unsold units also helped companies facing liquidity crises to secure funding and continue their projects. Most construction companies reclaimed their units through repurchase, and only a very small number of units ended up with HUG."

The REITs industry welcomed the inclusion of a REITs budget in this supplementary plan, calling it "virtually unprecedented." Cho Junhyun, Policy Director at the Korea REITs Association, said, "The government has never taken such an active approach to the REITs sector before. Normally, supplementary budgets focus on social overhead capital (SOC), and support via REITs has not been provided."

Director Cho explained regarding the "PF Advancement Seed Anchor REITs," "This is a kind of matching fund that uses government money as a catalyst to attract private capital. This can promote investment and ultimately help revive the construction market."

"Worse Than the IMF Crisis... True Recovery Requires Market Transactions"

Model home of a Seoul pre-sale apartment built on a site in Goyang, Gyeonggi Province. Photo by Yonhap News

The industry emphasized the significance of the government’s recognition of the on-site crisis and its response. A construction company official said, "The current situation is akin to a drought with not a single drop of rain. We hope this measure will serve as a catalyst to stimulate transactions in the pre-sale market."

Some expressed caution, saying, "The intent is good, but it is difficult to assess the effectiveness until the eligibility criteria and detailed structure are disclosed." Director Kim added, "In the case of the 'PF Advancement Seed Anchor REITs,' since it does not apply to all projects, we need to see how much practical support will actually be provided."

Additionally, given the severity of the construction market downturn, industry voices stressed, "Securing liquidity alone may provide some breathing room, but additional measures such as easing regulations on owners of multiple homes are necessary for a true recovery."