The cumulative approved equity investment for public-supported private rental REITs of the housing & urban fund increased by nearly 1.2 trillion won in one year. Of the increase during this period, 85% was allocated to business sites on the outskirts of the greater Seoul area and in the provinces, not in Seoul. The industry sees this as the result of more developers choosing the rental method supported by the fund instead of general pre-sales amid the slump in the provincial presales market. Although the government decided to expand 20-year long-term public-supported private rentals to stabilize the jeonse and monthly rent market, some note that it could be difficult to secure sufficient supply in Seoul, where rental demand is high.
Public-supported private rental is a project to establish REITs (real estate investment trusts) with the housing & urban fund and private capital to supply and operate rental dwellings. In return for receiving the fund's equity and loan support, developers must ensure public interest in areas such as tenant selection and rent. Dwellings are supplied first to those without a home, and the initial rent for general supply is capped at 95% of surrounding market levels.
According to the Korea Housing & Urban Guarantee Corporation (HUG) on the 30th, the cumulative approved equity investment for public-supported private rental REITs stood at 7.19841 trillion won as of the end of June this year. That was an increase of 1.16613 trillion won (19.3%) from 6.03288 trillion won at the end of June last year.
The number of REITs with approved equity investment rose by 22 over the same period, from 140 to 162. The number of supplied households increased by 17,321 (16.2%), from 107,093 to 124,414.
Of the 22 newly approved REITs, 17 were outside Seoul. The approved equity investment for 10 business sites outside the greater Seoul area, including Geoje, Yeosu, and Daegu, was 499.3 billion won. Seven business sites in the greater Seoul area excluding Seoul, including Dongducheon, Namyangju, and Hwaseong, were approved for 497.4 billion won. The combined 996.7 billion won accounts for 85.5% of the total increase in approved investment over the year.
The industry views this as a result of more developers opting for public-supported private rentals in regions with high unsold-home risk. In general pre-sales, if subscription is weak, presale proceeds do not come in, which can make it difficult to procure construction costs and repay project financing (PF) loans. Public-supported private rentals can reduce the initial funding burden because part of the project cost can be secured through the fund's equity and loans.
A person in the dwellings industry said, "In regions where project promotion has become difficult due to the slump in the presales market, there is demand to consider public-supported private rentals, which can reduce financial burdens compared with general pre-sales."
By contrast, the number of REITs in Seoul with approved equity investment increased by only five over the year. Of these, two were approved this year. The average number of households supplied by new Seoul REITs did not reach 400. Analysts say developers have little incentive to choose long-term rentals because land is expensive, large sites are hard to find, and presale potential is relatively high.
In its Aug. 13 rapid dwellings supply plan, the government decided to create a new type of public-supported private rental operated for 20 years or longer. For the 20-year type, the fund's equity investment cap will be raised from 11% to 14% of total project cost, and the loan limit will be expanded from up to 120 million won per household to 200 million won.
However, if supply continues to concentrate on the outskirts of the greater Seoul area and in the provinces, as in past approvals, the effect on stabilizing Seoul's jeonse and monthly rent market may be limited.
Seo Jin-hyung, a professor in the real estate law and administration department at Kwangwoon University, said, "In central Seoul, it may be difficult to secure project sites, so there may be few applications for public-supported private rentals," and added, "To stabilize the jeonse and monthly rent market, support measures should be designed so that supply is made in areas with real rental demand."
There is also an outlook that in Seoul, public-supported private rentals will increase mainly for small dwellings such as urban-style housing rather than large apartment complexes. A person in the dwellings industry said, "Because it is difficult to secure sites in Seoul, small rental dwellings targeting young people are highly likely to become the main supply type."