The Korea Land and Housing Corporation (LH) will take on the burden of unsold APT.s in the provinces, raising concerns that price, quality, and location must be considered in various ways during the purchase of dwellings. Purchasing dwellings that failed in the market due to issues with quality, location, and sales price using government funds may potentially induce 'moral hazard' among construction companies.
The Ministry of Land, Infrastructure and Transport announced on the 19th through the 'Regional Construction Market Supplementation Plan' that LH plans to directly purchase 3,000 unsold APT.s in the provinces after construction.
LH will utilize an allocated budget of 300 billion won for the existing purchase and rental program to acquire unsold APT.s in the provinces. After the purchase, the 'Dundun Jeonse Housing' system will be employed. Dundun Jeonse Housing allows residents to stay for up to eight years at a rent set at 90% of the market price, after which they can decide to convert to ownership if a certain period elapses. Since LH's acquisition of unsold APT.s in the provinces utilizes the existing budget, no additional financial input is required. The Ministry of Land, Infrastructure and Transport plans to secure additional budget if necessary in consultation with relevant ministries based on demand.
This is LH's first direct purchase of unsold APT.s in 15 years, since 2010. LH acquired 7,058 unsold APT.s from 2008 to 2010. At that time, the purchase price was less than 70% of the sales price.
LH's intervention as a resolver of the unsold housing issue in the provinces is being viewed as an inevitable decision to revive the regional economy. Hyosun Kim, a senior real estate expert at NH Nonghyup Bank, noted, "Some areas experiencing an increase in unsold properties may face difficulties for construction companies and regional decline if prolonged; therefore, public intervention, such as LH's housing purchase, seems unavoidable."
Nonetheless, there are concerns that LH must consider quality, location, and sales price when purchasing unsold dwellings in the provinces. If the standards for quality, location, and sales price are not met, LH will be left with dwellings that failed in the market, which may prevent them from securing sufficient rental demand. Additionally, it could end up simply guaranteeing the profits of private construction companies and encouraging moral hazard. Conversely, if LH secures properties among unsold APT.s in the provinces that are expected to increase in value due to future recovery in the real estate market, it could present an opportunity to acquire quality rental properties at lower prices.
Eunhyeong Lee, a research fellow at the Korea Construction Policy Institute, explained, "There is a risk that the quality of unsold APT.s from construction companies may not be uniform," adding, "Even if public entities purchase unsold APT.s for rentals, the rental demand is likely to vary based on location and price, so strict criteria for purchase price and quality must be established and applied." Lee emphasized the need for rigorous criteria to be applied for the public's purchase of unsold APT.s, along with the establishment of quality and location standards to ensure that it does not provide excessive benefits to unsold APT.s.
Yuseon Jong, a professor at Konkuk University's Department of Real Estate, stated, "Unsold dwellings indicate that the sales price and location do not align with market conditions," adding, "The government will attempt to acquire them at a discount, but principles for purchase must be established considering the region, the property in question, and efforts to resolve unsold properties." He also pointed out, "At the same time, there is a question of whether it is appropriate for the public sector to invest finances to purchase unsold dwellings."
The Ministry of Land, Infrastructure and Transport has stated its position to promote LH's purchase of unsold APT.s in the provinces, saying it will thoroughly consider location and price in response to these concerns. A Ministry representative said, "In the past (when LH purchased unsold dwellings), we bought houses at low prices using reverse auction methods," adding, "We will apply such methods and take into account location and existing residents' opinions when making purchases." However, there is a possibility that purchasing homes for a price lower than the sales price could cause resentment from existing residents, which may pose a hurdle to LH's acquisition of unsold APT.s in the provinces.
The construction industry expects that LH's purchase of unsold dwellings in the provinces will help in the recovery of the construction market. A representative from a construction company stated, "The burden of unsold inventory was significant, but now that a channel to resolve this has emerged, liquidity may improve."
Particularly, there are concerns that LH's purchase of unsold dwellings in the provinces may become a burden for the organization. With the current situation already facing personnel shortages due to increased housing supply, additional responsibilities could arise. In response, the Ministry of Land, Infrastructure and Transport stated, "We can utilize existing personnel from the purchase and rental program."