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 is a preparatory step before examining the appropriateness of the purchase prices. Such measures could discourage private sector participation, potentially worsening the housing supply shortage in urban areas. With housing prices soaring this year, concerns are growing that a reduction in purchase-rental housing could further increase housing insecurity for low-income residents.

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

According to government sources on the 23rd, the Ministry of Land, Infrastructure and Transport is drawing up plans to investigate the overall status of LH's purchase-rental program and to review how prices are calculated, in response to the President’s directive. The scope and method of the investigation have not yet been finalized. A ministry official stated, “Since the President directly raised the issue of purchase prices, this is not something we can simply overlook,” adding, “There is consensus on the need for a comprehensive investigation, but the specific approach is still under internal review.”

The new purchase-rental program involves private developers constructing non-apartment housing such as multiplexes and officetels, selling them to LH, which then uses them for public rental housing. The government’s goal is to supply 140,000 units in the Seoul metropolitan area alone over the next five years, based on construction starts. As new housing can only be supplied outside of redevelopment or reconstruction projects, this is a fast-track solution. It is also a key tool, accounting for more than 10% of the total housing supply plan (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 housing, making excessive profits,” and instructed, “Investigate thoroughly whether there are businesses exploiting LH.” 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 continuously called for the complete abolition of the purchase-rental program, arguing that it simply reflects the inflated land and construction costs of private developers. According to CCEJ’s research, over the past four years, LH, Seoul Housing & Communities Corporation (SH), and Gyeonggi Housing & Urban Development Corporation (GH) have spent a total of 16.7 trillion won on purchase-rental housing in Seoul and Gyeonggi Province. A CCEJ representative claimed, “There are cases where the price of a single officetel unit purchased for rental is equivalent to the price of two public apartment units in the same area,” and argued, “This structure guarantees at least a 10% profit margin, resulting in both waste of taxpayer money and stimulation of housing prices.”

LH and the appraisal industry are pushing back against these criticisms. They argue that during the tenure of former Minister Won Heeryong, the appraisal method was already revised to address similar controversies. The purchase price is now determined by external appraisers recommended by the Korea Association of Property Appraisers, who consider local transaction cases and construction costs. An LH official stated, “Under the current system, LH cannot arbitrarily raise purchase prices.” A representative from the Appraisers Association also explained, “With recent strengthening of cost verification, the structure no longer allows for the kind of high-price purchases seen in the past.”

In fact, LH claims that profitability has declined, leading to more private developers abandoning the program. Last year, LH secured only 38,531 units out of its target of 50,000 for the purchase-rental program. This year, there are also concerns that the target may not be met. With the launch of this comprehensive investigation, the purchase-rental market could contract even further.

If the conflict between the two sides deepens and the investigation drags on, the momentum of the program could weaken, further exacerbating the current housing supply shortage. Since purchase-rental housing is one of the few options available to ensure housing stability for young people and newlyweds in urban areas, the burden on low-income residents is expected to increase. On the other hand, if the controversy over high purchase prices is not resolved, public trust in real estate policy could be further undermined.

A Ministry of Land, Infrastructure and Transport official said, “We plan to carefully consider the scope and method of the investigation so as to address public doubts about the appropriateness of purchase prices without disrupting the housing supply,” adding, “We have no choice but to approach this cautiously to ensure that the results do not destabilize overall supply policy.”