The government will raise the purchase price for the "unsold home assured repurchase" program, in which it buys unsold apartments in provincial areas before completion and resells them to builders after the units are sold. Until now, the cap on the purchase price was 50% of the sale price, but if certain conditions are met, it will be expanded to 60% of the sale price. The assured repurchase program is a policy designed to revitalize regional construction activity, but the government appears to have made this decision after builders were reluctant to participate because of the low purchase price.
According to the Ministry of Land, Infrastructure and Transport and the Korea Housing & Urban Guarantee Corporation (HUG) on the 16th, HUG recently decided to raise the cap on the purchase price for the assured repurchase of unsold units and notified builders of the change. The cap on the purchase price for the assured repurchase program had been uniformly set at 50%. However, going forward, for apartments whose appraised value is at least 70% of the sale price, the cap will be expanded to 60% of the sale price.
A HUG official said, "Reflecting market demands, we raised the cap on the purchase price in consideration of the value of the dwellings to provide sufficient liquidity to unsold business sites before completion," and added, "Along with improving the system and strengthening publicity, we will work to achieve the government's purchase target early."
The assured repurchase program for unsold units is a project in which HUG purchases unsold dwellings in provincial areas before completion at up to 50% of the sale price. It targets business sites that have been issued a sales guarantee and have a construction progress rate of at least 50%. The government introduced this program so that builders who could not secure construction costs due to unsold inventory could obtain liquidity through the program and continue construction work.
Builders that receive support for purchasing unsold units can buy back the unsold dwellings from HUG within one year after completing the dwellings. If the builder does not repurchase them, ownership transfers to HUG and the apartments are disposed of through public auctions, among other means. The Ministry of Land, Infrastructure and Transport (MOLIT) provided substantial relief on financing costs included in the repurchase price by supporting HUG's ability to carry out the program through government subsidies totaling 250 billion won. With government support, the repurchase price is set lower, giving builders an effect similar to borrowing at an annual interest rate of 3% to 4%.
This year, the government finalized the budget for purchasing unsold dwellings in provincial areas at a total of 720 billion won and planned to buy 3,000 units to start, with a goal of acquiring 10,000 unsold dwellings by 2028.
However, contrary to the government's expectations, builder participation in the assured repurchase program for unsold units was low. HUG switched from a call-for-applications format with a set deadline to a rolling application system.
Even after changing the application method, participation by builders remained weak, so the government decided to raise the cap on the purchase unit price under certain conditions, as requested by builders. The assured repurchase program for unsold units has faced steady criticism that the purchase price for unsold apartments is too low to attract builder participation. According to the National Assembly Budget Office, the Ministry of Land, Infrastructure and Transport (MOLIT) set the per-household purchase cost for unsold apartments at 244 million won. This is lower than the average purchase price of 253 million won in 2011, when the repurchase-with-conditions program was first carried out due to the global financial crisis.
The construction industry welcomed the decision to raise the cap on the purchase price, but also suggested additional measures such as easing the construction progress standard. A construction industry official said, "The assured repurchase program for unsold units is less a measure for unsold inventory and more about supporting companies facing temporary liquidity difficulties," and added, "Many builders have said the support amount is tight, and I understand that MOLIT increased the price cap by 10 percentage points for that reason. However, because the program targets builders with construction progress over 50%, the number of companies that can receive support is limited, so we will have to see what effect the higher cap has."