The construction industry is crunching numbers after the Korea Land and Housing Corporation (LH) disclosed the upper limit for purchasing unsold dwellings in regional areas. With the upper limit set lower than expected, companies are weighing whether to offload their unsold housing inventory to LH at a lower price to secure liquidity or to hold onto it until the real estate market recovers. Accordingly, it is anticipated that companies in need of securing financial resources will apply for the purchase of unsold dwellings from LH, even if it means significantly reducing housing prices.
According to the Ministry of Land, Infrastructure and Transport and LH on the 23rd, LH has set the purchase price for unsold dwellings in regional areas at 83% of the self-assessed appraisal value. Actual purchases are expected to occur in order of the lowest sales prices proposed by the industry.
An official from the Ministry of Land noted, "The upper limit for purchases is set at 83% of the appraisal value to comprehensively consider past purchase cases, the local housing market, and sufficient self-help efforts from the industry," adding, "Since 'high sale prices' are identified as one of the main causes of unsold dwellings, we designed this to reflect actual transaction prices through separate appraisals."
Previously, LH announced last month that it would directly purchase 3,000 unsold dwellings in regional areas, as the issue of unsold inventory outside the capital region had become serious. The number of unsold dwellings that have been completed but not sold has approached 23,000 as of January this year, marking the highest level in 11 years and 3 months.
The construction industry has expressed dissatisfaction, pointing out that the upper purchase limit is set at a significantly low level. This is because the criteria for determining the purchase price are based not on the sale price but on LH's self-assessed appraisal value, forcing companies to sell unsold dwellings at prices significantly discounted from the actual sale prices. As a result, the industry expects that companies in urgent need of liquidity will sell their unsold inventory to LH.
An industry insider said, "Looking at the appraisal values applied in LH's past purchase projects, they are 20-30% lower than the amounts appraised by the companies themselves." They added, "Based on this, the upper limit suggested by LH is only about 60% of the sale price." This insider continued, "Given that construction costs have risen significantly, there aren't many places willing to sell dwellings at rock-bottom prices. However, companies in urgent financial situations are likely to try to sell their unsold inventory even at a low price."
However, LH is in a difficult situation to raise the upper limit for purchasing unsold dwellings further. LH's liabilities exceeded 152 trillion won as of last year's first half. In this context, increasing the prices of unsold dwellings is unreasonable. There is also the issue of 'moral hazard' in which public institutions are held responsible for the failures of construction companies' business judgments, which is another reason why LH cannot raise the prices of unsold dwellings.
Companies with financial capacity are expected to decide whether to dispose of their unsold dwellings based on the potential recovery of the real estate market due to additional interest rate cuts and the political sector's discussions on further measures for unsold dwellings. Recently, in the National Assembly, proposals have been discussed to abolish the additional taxation for multiple homeowners when purchasing additional dwellings in regional areas. If private purchase demand for regional real estate is likely to recover, it is anticipated that more companies will hold onto their unsold dwellings until the market recovers to receive fair prices instead of selling them at steep discounts.
Another official in the construction industry noted, "Companies with financial strength will decide whether to sell unsold dwellings by considering the potential recovery of the regional real estate market in light of further interest rate cuts." They added, "Given the recent political situation, there may be more measures regarding unsold dwellings in regional areas, but it seems unlikely that there will be companies willing to sell at reduced prices."