KDI Warns "Regional Real Estate Drags Down Construction Investment"... Government Policy Only "96 Characters"?Has the Government Abandoned the Regions? [Real Estate AtoZ]

KDI Warns: Regional Real Estate Slump Dragging Down Construction Investment
Only 96 Characters on Regional Issues in September 7 Policy
Falling Home Prices, Low Subscription Rates, Unsold Inventory, Shrinking Supply?A Comprehensive Crisis
Backlash Spreads Nationwide: "Has the Government Abandoned the Regions?"
"Reviving Regional Areas Is Key to Construction Recovery"?Urgent Need for Follow-Up Measures

There are growing concerns that the government's September 7 real estate policy, which targets only the Seoul metropolitan area, could further deepen the construction downturn in regional areas. All indicators reflecting the state of the regional housing market have plummeted, and the first housing supply expansion policy announced by the new administration has been thoroughly centered on the Seoul metropolitan area.

Even in the extensive policy materials prepared by the Ministry of Land, Infrastructure and Transport, references to regional areas were limited to reiterating past measures. National research institutes have also assessed that the sluggish regional housing market is delaying the recovery of construction investment. Amid heated criticism that "the government has abandoned the regions," experts are stressing the urgent need for tailored measures.

Regional Real Estate Hits Rock Bottom, Dragging Down Construction Investment

Daegu's 'Ghost Apartment' Sangin Prugio Center Park, left unsold and neglected for nearly two years with close to 1,000 unsold units. It is notorious as a 'graveyard of unsold apartments' even within Daegu. Daewoo Construction.

The Korea Development Institute (KDI), in its recently released "September Economic Trends," analyzed that "the slowdown in the regional real estate market is delaying the recovery of construction investment." The warning is that the regional real estate slump is leading to a contraction in construction investment, which could hinder the overall national economy. The Bank of Korea has also cited the sluggish construction sector as a key factor undermining the country's economic growth rate.

As of July, construction output had declined by 14.2% compared to the same period last year, following a 12.1% decrease in the previous month, marking a continued double-digit drop. Construction output, which refers to payments made according to project progress, is a key indicator of current construction investment trends.

The regional real estate market is mired in a slump. According to the Korea Real Estate Board, apartment prices in regional areas have fallen by 1.27% cumulatively this year. The five major metropolitan cities saw a 1.80% drop, while the eight provinces recorded a 0.95% decline. In contrast, during the same period, apartment prices in Seoul rose by 4.83%, and in the Seoul metropolitan area by 1.29%. Daegu, in particular, experienced the steepest decline nationwide at -3.25%, marking 93 consecutive weeks of decreases. Of the 104 regional cities, counties, and districts, 81 saw declines, while only 23 recorded increases. This has led to the assessment that prices have not only hit bottom but are now breaking through it.

Demand indicators are also weak. The top-priority subscription competition rate for new apartments in regional areas dropped from 13.6 to 1 in 2021 to 6.2 to 1 last year, and further to 5.2 to 1 as of September 10 this year. About 79% of unsold homes nationwide (as of July) are concentrated in regional areas. The number of new housing units expected to be supplied in regional areas is also projected to plummet from 134,246 units this year to 95,254 units next year. This marks the first time in 14 years since 2012 (76,213 units) that regional housing supply will fall below 100,000 units.

Only Two Sentences, 96 Characters for Regional Measures..."Urgent Need for Tailored Follow-Up Policies"

Despite these circumstances, the September 7 government policy included only two sentences and 96 characters addressing regional issues: "As regional areas have experienced prolonged house price declines and deepening unsold inventory, it is necessary to focus on resolving unsold homes through demand recovery rather than supply expansion." "On August 14, we announced the 'Regional-Focused Construction Investment Reinforcement Plan,' which includes tax support and the purchase of unsold homes, and are currently implementing follow-up measures." These statements were merely general remarks, lacking any new solutions.

Requests to expand the second home system to metropolitan cities, which had been consistently made from regional areas, were not reflected. Proposals to ease regulations on multiple home ownership in regional areas, raised during a meeting between Minister Kim Yoonduk of the Ministry of Land and the CEOs of the top 10 construction companies, were also not accepted. As a result, there is growing backlash, especially in the five major metropolitan cities, with claims that "the government has abandoned the regions." With large-scale supply plans expected to draw capital into the metropolitan area, there are concerns that not only will the regional unsold home problem remain unresolved, but project financing (PF) risks could surface even more quickly.

Experts warn that without tailored follow-up measures for regional areas, the construction downturn could become prolonged. Seo Seongsu, Dean of the Graduate School of Real Estate at Youngsan University, stated, "While preemptive measures are needed to stabilize prices in Seoul, immediate stimulus is necessary for regional areas that are already in a slump," adding, "Small and medium-sized construction companies in the regions are in an even more precarious situation than the large firms."

He further emphasized, "The regional real estate issue is not limited to the housing market alone; it is directly linked to local universities, jobs, and the overall regional economy, and in the long term, it could hinder national growth." He added, "In the short term, extraordinary measures such as differentiated tax policies exclusively for regional areas are needed, and follow-up measures must be expedited from the perspective of balanced national development."