"These are jeonse units held by the company. We are assigning specific building and unit numbers on a first-come, first-served basis for about 100 households. Units with options are running out first."Promotional copy for jeonse on an unsold apartment after completion in a provincial area.
Recently, company-held units at unsold apartments after completion in provincial areas have been coming onto the market as jeonse. As the slump in construction in the provinces drags on, construction firms, feeling the burden of holding onto unsold apartments after completion, are seeking jeonse tenants to secure at least some liquidity.
According to the construction industry on the 2nd, units held by construction companies among unsold apartments after completion outside the greater Seoul area are steadily being offered as jeonse. An apartment complex in Gyeongju, North Gyeongsang, which began move-ins in Jan., recently converted company-held apartments to jeonse. An apartment in Gumi, North Gyeongsang, also began move-ins in Apr. this year, but when sales did not proceed, corporate-held units were switched to two-year jeonse so that a sales decision could be made afterward. An apartment in Gwangyang, South Jeolla, completed last year, also put company-held units out as jeonse. The builder of this apartment allowed residents to live in company-held unsold dwellings on jeonse for up to four years and then purchase at the initial sale price.
With home sales difficult amid a real estate downturn, builders are converting unsold inventory to jeonse to secure immediate liquidity. They are first securing jeonse deposits to shore up liquidity.
An official at a provincial construction company said, "For apartments built outside the greater Seoul area, many remain unsold even after completion, so we are converting them to jeonse," adding, "We are trying to recover at least part of the construction costs by allowing residents to live on jeonse for 2+2 years first and then purchase at the initial sale price."
The unsold housing problem has been worsening, particularly in the provinces. Unsold dwellings after completion—called "toxic unsold units" because they do not sell even after being fully built—totaled 28,080 households nationwide in Oct., up 3.1% from the prior month (27,248 households). Of these, unsold units after completion in the provinces numbered 23,733 households, accounting for 84.5% of the total. That is the highest level this year.
Government support to clear unsold units continues, but construction firms have few real options. Even if they try to clear inventory through their own discounted sales, it is hard to lower prices because early buyers push back strongly. Another provincial construction company official said, "Even if we try discount sales, existing buyers demand the same sale price and ask for refunds, so it is not easy to lower prices and sell."
Some builders with liquidity to spare prefer not to use the government's support policy for unsold units. The government is purchasing unsold dwellings after completion in the provinces through Korea Land & Housing Corporation (LH). However, because the purchase cap is around 90% of the appraised value, many builders are opting to wait for a real estate recovery and get full value. An industry official said, "Builders without immediate liquidity are handing over apartments to LH's unsold purchase program," adding, "Those with the capacity to hold out prefer to wait until they can get proper prices rather than take government support."
The construction industry forecast that if the unsold problem worsens, this "holding out strategy" will also become difficult to maintain. A provincial construction industry official emphasized, "If the provincial construction market deteriorates further, builders that have endured so far by converting to jeonse will face even greater difficulties," adding, "The government needs to pursue more active policies to revive the provincial construction market."