Attempt to Curb 'Inflated Purchase Rentals' May Trigger a 'Supply Cliff'... The Dilemma of a Comprehensive Investigation into Purchase Rental Housing [Real Estate AtoZ]

"Investigate Rumors of Homes Built for 100 Million Won Being Sold for 120 Million Won," President Orders
CCEJ: "Program Reflects Private Developers' Inflated Costs, Should Be Abolished"
LH: "No Issues with Appraisal Method... Recent Lower Unit P

The government is launching a comprehensive investigation following President Lee Jaemyung's criticism that Korea Land and Housing Corporation (LH) is purchasing newly built private homes at inflated prices for its purchase rental housing program. This preparatory step precedes a review of the appropriateness of purchase prices. Such measures could dampen private sector participation and exacerbate the urban housing supply shortage. Concerns are being raised that, with home prices soaring this year, a reduction in purchase rentals could further heighten housing insecurity for low- and middle-income residents.

Youth Purchase Rental Housing in Daebang-dong, Dongjak-gu, Seoul. LH.

According to government sources on December 23, the Ministry of Land, Infrastructure and Transport is formulating an investigation plan to assess the overall status of LH's purchase rental housing program and to examine its price calculation structure, in line with the president's directive. The scope and method of the investigation have yet to be finalized. A ministry official stated, "Since the president directly raised the issue of purchase prices, it cannot be overlooked," adding, "There is a consensus on the need for a comprehensive investigation, but the specific methodology is still under internal review."

The new construction purchase rental program involves private developers building non-apartment housing such as multiplex homes and officetels, selling them to LH, which then uses them as public rental housing. The government aims to supply 140,000 units in the Seoul metropolitan area alone over the next five years, based on construction starts. In a situation where new housing can only be supplied through redevelopment or reconstruction projects, this approach enables rapid delivery. It is also a key tool, accounting for over 10% of the total housing supply plan of 1.35 million units. In a recent Ministry of Land, Infrastructure and Transport work report, President Lee stated, "There are rumors that construction companies are building homes worth 100 million won and selling them to LH for 120 million won each as rental units, making excessive profits," and ordered a broad investigation to determine whether LH is being exploited. The long-standing controversy over "inflated purchase rental prices," raised by civic groups, has now become an official policy issue.

The Citizens' Coalition for Economic Justice (CCEJ) has consistently called for the complete abolition of the purchase rental program, arguing that it directly reflects inflated land and construction costs set by private developers. According to CCEJ's findings, LH, Seoul Housing & Communities Corporation (SH), and Gyeonggi Housing & Urban Development Corporation (GH) spent a combined 16.7 trillion won on purchase rentals in Seoul and Gyeonggi Province over the past four years. A CCEJ representative claimed, "There are cases where the price of a single officetel unit purchased for rental matches the price of two public apartment units in the same area," adding, "The structure guarantees at least a 10% profit margin, resulting in both wasteful use of taxpayers' money and upward pressure on home prices."

LH and the appraisal industry are pushing back against these criticisms. They argue that the appraisal method was already reformed during former Minister Won Heeryong's tenure to address similar controversies. Purchase prices are now determined by external appraisers recommended by the Korea Association of Property Appraisers, who calculate them based on comparable sales in the area and construction costs. An LH official stated, "Under the current system, LH cannot arbitrarily raise purchase prices." A representative from the Association of Property Appraisers also explained, "With recent enhancements in cost verification, the structure no longer allows for the kind of overpriced purchases seen in the past."

In fact, LH claims that declining profitability is leading more private developers to abandon these projects. Last year, LH secured only 38,531 units out of its 50,000-unit purchase rental target. There are concerns that this year's target may also be missed. If the upcoming comprehensive investigation proceeds, the purchase rental market could shrink even further...

If the conflict between the two sides deepens and the investigation drags on, the momentum of the program could be lost, further aggravating the current housing supply shortage. Since purchase rentals are among the few policies supporting housing stability for young people and newlyweds in urban areas, the burden on low- and middle-income residents is expected to increase. On the other hand, failing to resolve the controversy over inflated purchase prices could further undermine public trust in real estate policy.

A Ministry of Land, Infrastructure and Transport official stated, "We plan to carefully review the scope and method of the investigation so as to address public doubts about the appropriateness of purchase prices without disrupting housing supply," adding, "We have no choice but to proceed cautiously to ensure the investigation's findings do not destabilize overall supply policy."