Reports that An Yu-jin (23) of the girl group Ive won a subscription for THE H Bangbae, a reconstruction complex in Bangbae-dong, Seocho-gu, Seoul, have reignited a fairness debate over high-priced "lottery subscriptions."
Contrary to the intent of the subscription system to offer homeownership opportunities to those without homes, critics say that in Gangnam, where sale prices exceed 2 billion won, the real barrier to entry is whether one can secure hundreds of millions of won in cash after winning.
THE H Bangbae is a 3,064-dwelling complex rebuilt from Bangbae District 5 and subject to the price cap on pre-sale. The maximum sale price for an 84-square-meter exclusive unit is about 2.24 billion won. Considering that asking prices for nearby apartments of the same size are around 4 billion won, the price gap is as much as 1.8 billion won. An Yu-jin's side said it is "difficult to confirm because it is a personal matter" regarding whether there was a subscription win and the dwelling type.
◇ Contracts harder than "winning"… you need hundreds of millions of won in cash
The crux of the controversy is who benefits from the huge arbitrage gains created by the price cap on pre-sale.
The price cap on pre-sale is a system that limits apartment sale prices based on land costs, the standard construction cost, and surcharges. It aims to curb rising sale prices for new dwellings and reduce housing costs for end users.
However, many newly built apartments in Gangnam exceed 2 billion won even under the cap. As a result, the ability to raise a down payment and interim payments has become a more crucial variable than whether one has no home or the subscription score.
For THE H Bangbae's 84-square-meter exclusive unit, the down payment alone exceeds 400 million won. Of the 60% interim payments, the loanable amount is around 50% of the sale price, so buyers must cover 10% of the interim payments themselves. Combining the down payment and self-funded interim payments, close to 700 million won is needed, and borrowers must also pay monthly interest on interim payment loans in the 4% range annually. In other words, substantial assets or income are required to proceed from winning to an actual contract.
A similar debate has recurred in previous Gangnam sales. The 59-square-meter exclusive unit at Maple Xi in Jamwon-dong, Seocho-gu, was sold for about 1.7 billion won, but recent transaction prices climbed to around 4 billion won, with gains exceeding 2 billion won. At the time, analyses said buyers needed at least 500 million won in cash before move-in when combining the down payment and self-funded interim payments.
For the 84-square-meter exclusive unit at Raemian One Pentas in Banpo-dong, Seocho-gu, the down payment alone reached about 430 million won. Because it was sold after completion, winners had to prepare a remaining balance of around 1.7 billion won about two months after the subscription.
◇ "A lottery only for the cash rich"… with sale-price suppression effects
High-priced lottery subscriptions select winners based on factors such as whether they have no home, but critics say those who can realize the massive gains are ultimately limited to groups with the ability to mobilize funds.
Online, commenters said, "If you don't have money, you can't sign even if you win," and "A system meant to stabilize housing for ordinary people is giving the cash rich a chance to grow their assets." The system, they said, now prioritizes financial wherewithal over whether one has no home.
On the other hand, some argue that easing or abolishing the cap is not the answer. Raising sale prices closer to surrounding market levels could increase the burden of homeownership for those without homes. It is also hard to ignore the function of curbing high sale prices from driving up prices of nearby new apartments and existing dwellings.
According to Real Estate R114, as of last month, among 47 sales complexes in the greater Seoul area this year, the average first-priority subscription competition rate for the 11 complexes under the price cap was 18.52 to 1. That was more than 2.5 times higher than the average rate of 7.34 to 1 for the 36 complexes not under the cap. The result is seen as demand flocking to capped complexes supplied below surrounding market prices.
◇ Calls to supplement the system… "Keep the intent, but discussion is needed"
Some say the system should be supplemented to maintain the price-suppression function of the cap while addressing the structure in which gains concentrate among a subset of winners.
Ideas include adding income and asset criteria to high-priced dwelling subscriptions, tightening occupancy requirements and resale restrictions, recouping part of the gains, or introducing a housing bond bidding system.
However, tougher income and asset criteria could exclude middle-class households without homes who have saved for years. Resale restrictions and occupancy requirements can block short-term profit-taking but cannot eliminate the gains themselves. A housing bond bidding system could also favor applicants with the means to buy more bonds.
A real estate industry official said, "For high-priced complexes, it is necessary to reflect in the system the reality that funding ability matters more than subscription qualifications," adding, "The key is how to balance the function of reducing burdens for end users with adjusting excessive gains flowing to winners."