Since the government's unsold-home purchase commitment program, construction companies have been moving one after another to rush the start of dwelling construction in public housing sites in the greater Seoul area. Construction firms had bought public housing sites but could not start work due to concerns about unsold units as the real estate downturn dragged on. But after the government promised to purchase even if unsold units occur when construction starts early on public housing sites, some builders began to ramp up their dwelling projects. Applications for the unsold-home purchase commitment cover as many as 24,000 units and are expected to provide timely relief for the greater Seoul area's supply shortage.
The unsold-home purchase commitment program is a plan under which, if a private builder breaks ground early on a public housing site in the greater Seoul area it previously acquired, the government will buy the unsold dwellings even if they occur.
On the 4th, according to the Korea Land & Housing Corporation (LH) and the construction industry, there are 40 lots in public housing sites in the greater Seoul area that have applied for the unsold-home purchase commitment. Converted to the number of units, that is 23,875.
After applying for LH's unsold-home purchase commitment, 14 lots have proceeded to start dwelling construction. With these groundbreakings, 8,562 units will be supplied to the greater Seoul area. Thirty-five percent of the applied volume has led to actual starts. As the deadline for early starts runs through the first half of next year, the actual number of starts is likely to grow.
The Ministry of Land, Infrastructure and Transport announced the greater Seoul area unsold-home purchase commitment policy through the Sept. 7 measures to ease the region's supply crunch. With dwelling supply in the greater Seoul area falling short and the construction cycle slumping, builders had been buying public housing sites but holding back projects over fears of unsold units. Some builders even forfeited deposits and canceled land purchase contracts for multifamily dwelling sites.
To partially ease the risk of unsold units and encourage builders to break ground, the government decided to purchase unsold dwellings at 85% to 89% of the average presale price, depending on the unsold rate at the time of application for the commitment. The start of payment for the purchase price was also moved up by one year, from six months after completion to six months before completion.
The construction industry is giving positive reviews that the unsold-home purchase commitment is having an effect. It had been hard to decide to start dwelling construction due to unsold concerns, but some say decisions on groundbreakings became much easier after applying for the commitment. In particular, in the greater Seoul area, signs of a real estate rebound appear to be revealing the effects of the unsold-home purchase commitment.
An executive at a construction company said, "After signing the unsold-home purchase commitment, two land parcels moved to groundbreaking," adding, "Contrary to expectations that one parcel would have unsold units, all units sold, and while the other has some unsold units, we expect all to be sold before completion. The application for the unsold-home purchase commitment reduced some presale risk, which made it easier to decide to start dwelling construction."
In particular, as a plan to take back public housing sites acquired by the private sector but where dwellings are not being built and have LH push development directly is being reviewed mainly in the National Assembly, some builders that bought attractive sites are reportedly moving to break ground early.
With applications for the unsold-home purchase commitment due at the end of this month, LH plans to encourage builders holding public housing sites in the greater Seoul area to apply. LH recently announced the unsold-home purchase commitment program through construction associations and others. An LH official said, "The greater Seoul area unsold-home purchase commitment program is intended to induce prompt construction starts and ease market anxiety stemming from rising home prices in the region," adding, "Sentiment in the construction industry toward the greater Seoul area unsold-home purchase commitment program is fairly positive."