Korea Land & Housing Corporation (LH) is facing growing criticism for buying unsold apartments in provincial areas after completion at prices exceeding 90% of appraised value, with questions mounting over whether the public is being forced to shoulder builders' management failures with tax money. With the government even setting an additional target for LH to purchase 5,000 units, voices in the construction and development industries say some now expect they can get a higher price if they wait.
◇ Government sets targets and LH raises purchase prices, prompting a waiting game
According to the construction industry on the 13th, the government and Korea Land & Housing Corporation (LH) are currently accepting applications for the "third-round purchase program for unsold apartments in provincial areas after completion." Under this program, LH buys unsold apartments in provincial areas after completion, rents them out for six years, and then converts them to sale, a purchase-to-sale conversion rental program. It was pursued as part of the "measures to shore up regional construction conditions" the government released last year.
The issue is the purchase price. In March last year, when it released the first notice targeting the purchase of 3,000 units, LH presented a ceiling of up to 83% of appraised value. But in the second notice released in August the same year, it added plans to buy 5,000 additional units to the initial 3,000 and raised the purchase ceiling to up to 90% of appraised value. On top of that, it can apply an additional 4 percentage-point adjustment depending on factors such as sales rate and complex size, bringing the effective maximum purchase price to as high as 94% of appraised value.
The total project cost is about 1.4 trillion won. Government funds of 495 billion won and LH's own capital are being injected.
As purchase prices have risen, builders and developers are engaged in a "waiting game" over LH notices. At the time of the first notice last year, 58 complexes with 3,536 units applied for purchase, and 12 complexes with 733 units passed the review. However, only 92 units resulted in actual contracts. After LH issued the second notice raising the cap to 90% of appraised value, many companies withdrew their previous applications and reapplied.
An LH official said, "With the purchase price raised in the second notice, most companies withdrew their previous applications and resubmitted." In the second notice, 6,185 units applied for purchase, and 2,260 units, or 37%, passed the purchase review. Contracts are being concluded for 1,861 units that indicated their intention to negotiate a sale.
◇ Three years ago, the Democratic Party of Korea said, "No special favors; cap at 50% of top appraised value"
Political circles also criticized using tax money to make up for past corporate management failures. In a January 2023 press conference, the Democratic Party of Korea, regarding LH's purchase of unsold apartments, said, "There are suspicions this could be making up the profits of certain builders," and argued, "The purchase price for unsold housing should be discounted to as low as 50% of the sale price."
The controversy at the time flared after LH bought 36 unsold units at Daewon Cantabile Suyu Palace in Suyu-dong, Gangbuk-gu, Seoul, for about 8 billion won. Because the purchase came just before President Yoon Suk-yeol instructed officials to "review plans for public institutions to buy unsold dwellings," it escalated into a debate over whether "certain projects were granted benefits in the course of implementing government policy."
◇ Experts and civic groups also say high-price purchases are inappropriate
Experts and civic groups are also expressing concern over buying unsold apartments at 90% of appraised value. The Citizens' Coalition for Economic Justice (CCEJ) issued a statement on the 8th, saying, "The root causes of the unsold-home problem lie in builders' failure to forecast demand and the pre-sale structure," and criticized, "High-price purchases ultimately use citizens' tax money to make up for builders' management failures."
CCEJ also argued, "Before the government takes on unsold housing, builders should first be induced to make self-help efforts such as cutting sale prices or selling assets." Oh Se-hyung, Director General of CCEJ's economic policy team, said, "We oppose wasting tax money without builders' self-help efforts."
On the other hand, some in the construction industry say, "With the construction slump in provincial areas severe, prolonged unsold inventory could spill over into regional economic weakness and insolvency in the financial sector," adding it is an "unavoidable step to soften the market shock." Still, both inside and outside the industry, there are considerable concerns that "if expectations build that LH will keep lifting purchase prices, it could actually worsen market distortions."