As Korea Land & Housing Corporation (LH) buys unsold apartments in provincial areas after completion at prices exceeding 90% of the appraised value, criticism is mounting that taxpayers are being forced to shoulder builders' management failures. With the government even setting an additional purchase target of 5,000 units for LH, some in the construction and development industry say a belief is taking hold that waiting could lead to selling at higher prices.
◇ 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 of purchases of 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, then converts them to sales—a purchase-to-sale conversion rental program. It was pursued as part of the "supplementary measures for regional construction markets" the government released last year.
The issue is the purchase price. In March last year, when the first notice was issued, LH targeted the purchase of 3,000 units and proposed up to 83% of appraised value. But in the second notice released in August of the same year, it added a plan to buy an additional 5,000 units to the existing 3,000, and raised the purchase price to up to 90% of appraised value. On top of that, depending on sales rate and complex size, a 4 percentage point premium adjustment can be applied, pushing the effective maximum purchase price to about 94% of appraised value.
The total project cost is about 1.4 trillion won. Government funds of 495 billion won and LH's own funds will be injected.
As the purchase price rose, construction and development firms are engaging in a "waiting game" over the LH notices. When the first notice was issued last year, 58 complexes with 3,536 units applied for purchase, and 12 complexes with 733 units passed screening. However, only 92 units ended up signing contracts. After LH issued the second notice raising the price to up 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 existing applications and resubmitted." In the second notice, 6,185 units applied for purchase, and 2,260 units, or 37%, passed the screening. Contracts are being concluded for 1,861 units that indicated a willingness to negotiate a sale.
◇ Three years ago, the Democratic Party of Korea said, "No special favors; cap at 50% of the highest appraised value"
Political circles also criticized covering past corporate management failures with taxes. In a January 2023 press conference, the Democratic Party of Korea, referring to LH's purchases of unsold apartments, said, "There are suspicions this is preserving the profits of certain builders," and argued, "Purchase prices for unsold homes should be discounted to as low as 50% of the sales price."
The controversy then flared after LH bought 36 unsold units at "Daewon Kantabil Suyu Palace" in Suyu-dong, Gangbuk-gu, Seoul, for about 8 billion won. The purchase came just before President Yoon Suk-yeol instructed officials to "review plans for public institutions to buy unsold dwellings," fueling debate that "a particular project was given benefits in the course of carrying out government policy."
◇ Experts and civil society also say high-priced purchases are inappropriate
Experts and civic groups also expressed concern about buying unsold apartments at 90% of the appraised value. The Citizens' Coalition for Economic Justice (CCEJ) issued a statement on the 8th, saying, "The root cause of the unsold housing problem lies in builders' failed demand forecasts and the pre-sale structure," and criticized, "High-priced purchases ultimately use citizens' tax money to make up for builders' management failures."
CCEJ also argued, "Before the government takes on unsold homes, builders should first be induced to make their own efforts, such as lowering sales prices or selling assets." Oh Se-hyung, head of economic policy at CCEJ, said, "We oppose wasting tax money without builders' self-rescue efforts."
By contrast, the construction industry argues that "with the slump in regional construction severe, prolonged unsold inventories could spill over into the regional economy and the financial sector," calling it an "inevitable measure to ease market shock." Still, both inside and outside the industry, there is significant concern that "if expectations build that LH will keep raising purchase prices, it could actually amplify market distortions."