Since the Oct. 15 real estate measures, the government has been struggling to decide how to wind down the New Stay program, a corporate rental housing scheme for the middle class. New Stay is a corporate rental housing program in which the housing & urban fund and private construction companies contribute capital to establish a real estate investment company (REITs), allowing tenants to live for up to eight years at rents set at about 90% of surrounding market rates.
As New Stay's mandatory rental periods begin expiring at the end of this month, the government had been leaning toward converting units to sales for tenants. But after last month's real estate measures capping the loan-to-value (LTV) ratio at 40% in 12 areas of Seoul and Gyeonggi, some tenants facing tougher borrowing began calling for rental extensions. With less than two weeks left before the mandatory rental periods end, the government still has not decided how to close out the New Stay program.
According to the Ministry of Land, Infrastructure and Transport and the Korea Housing & Urban Guarantee Corporation (HUG) on the 13th, the mandatory rental period for e-Pyeonhansesang Terrace Wirye, an apartment-type New Stay, ends at the end of this month. However, HUG and the private operator are still discussing whether to convert the complex to sales or extend rentals.
A Ministry of Land, Infrastructure and Transport (MOLIT) official said, "HUG, representing the housing & urban fund, and the private operator are discussing New Stay business sites whose maturities come due at the end of November," adding, "The minimum mandatory rental period sets only the lower bound of the rental term; it does not mean a sale is mandatory."
The largest shareholder of the REIT for e-Pyeonhansesang Terrace Wirye, named "Wirye New Stay Corporate Rental Delegated Management REIT," is the housing & urban fund (69.99% equity). HUG is acting on behalf of the Ministry of Land, Infrastructure and Transport, which manages and operates the housing & urban fund. DL Co., the private operator, holds 15.78% equity.
With the project liquidation for e-Pyeonhansesang Terrace Wirye just two weeks away, the government has yet to decide whether to convert the apartments to sales for tenants or extend rentals. In particular, e-Pyeonhansesang Terrace Wirye is the first among apartment-type New Stay projects to see its mandatory rental period expire, and its outcome could heavily influence how other New Stay business sites are wound down. When introducing New Stay, the government left the liquidation method to the discretion of the REITs to encourage participation by private construction companies. Although the government is the largest shareholder of New Stay REITs, it must decide the liquidation method by reflecting the views of other shareholders, namely private builders.
MOLIT had originally been leaning toward converting e-Pyeonhansesang Terrace Wirye to sales. That was because a majority of residents with priority purchase rights wanted conversion. The fact that the private operator DL also wanted to realize revenue through conversion influenced the government's decision. New Stay was designed so that private builders could take returns exceeding the initial agreed yield, and most private builders want to convert to sales to recover tied-up funds in New Stay and realize revenue.
A person familiar with the Wirye New Stay REIT said, "The government reviewed a plan to grant tenants the conversion-to-sale right while setting the sale price roughly in line with market prices," adding, "Tenants at the time were also advocating conversion, and from the standpoint of DL, the private builder, it was natural to seek to realize revenue through sales conversion."
However, after the Oct. 15 real estate measures made it harder to buy a home with loans, the mood shifted regarding how to wind down New Stay. Most tenants at e-Pyeonhansesang Terrace Wirye wanted to purchase their dwellings. But since Sujeong District in Seongnam, Gyeonggi, where e-Pyeonhansesang Terrace Wirye is located, was also bound by a "triple regulation" as a designated adjustment area, speculative overheating zone, and land transaction permit zone, some tenants with weaker finances have begun calling for rental extensions. Given that New Stay does not set tenant eligibility requirements, some tenants already own dwellings, and for such owners, the latest real estate curbs have increased the burden of acquiring additional dwellings.
A REIT official said, "Since the Oct. 15 measures, there are tenants who want to delay sales conversion as much as possible and purchase after lending curbs are eased." A MOLIT official said, "There is no provision in the project agreement that decides rental extensions by reflecting resident opinions," but added, "We should still take them into some account." The official continued, "We are keeping all options open and negotiating with the private operator," and added, "Nothing has been decided, but we will reach a conclusion by the end of this month or, at the latest, within the year."
Starting with e-Pyeonhansesang Terrace Wirye, the mandatory rental periods for New Stay business sites totaling nearly 40,000 units will expire within five years. From this year through 2030, rental periods for 38,484 units at 46 New Stay business sites will end. If the liquidation method for e-Pyeonhansesang Terrace Wirye is not finalized, confusion could spread to other sites.
A HUG official said, "We will handle each business site differently, but given the size of the Wirye site, it will influence how other New Stay business sites are handled."