The government will implement the 'buy-back assurance' policy to address the issue of the rapidly increasing unsold dwellings in the provinces. The government will purchase pre-construction unsold inventory at half price, which will then be repurchased by the construction company after the completion. This is the first emergence of a conditional buy-back measure as a countermeasure for unsold dwellings in 17 years since the 2008 financial crisis. Construction companies welcome this policy, stating it will help solve the cash flow difficulties that arise when unsold dwellings accumulate.
The Ministry of Land, Infrastructure and Transport noted on the 19th that it has allocated 300 billion won for promoting the unsold buy-back assurance policy as part of the supplementary budget. A total budget of up to 2.4 trillion won will be invested for purchases.
The buy-back assurance policy is a 'conditional buy-back policy' under which the Korea Housing and Urban Guarantee Corporation (HUG) buys unsold dwellings in the provinces at 50% of their sale price, with the condition that the construction company repurchases them after completion. The construction company must repurchase these dwellings within one year after completion, adding the interest expense to the purchase price.
This policy was previously implemented by the government during the financial crisis from 2008 to 2010 to resolve unsold dwellings. At that time, the predecessor of HUG, the Korea Housing Guarantee, purchased approximately 19,000 unsold dwellings with a construction completion rate of over 50%, up to a limit of 150 billion won per construction company.
The dwellings purchased through this buy-back assurance policy will be provincial apartments that have completed the sale guarantee membership and have a construction completion rate of over 50%. The scale of purchases is expected to average 3,000 units per year, totaling 10,000 units over three years.
If the construction company does not repurchase within one year through their own efforts, the unsold dwellings will transfer to the ownership of HUG. The Ministry of Land, Infrastructure and Transport explained that unlike previous policies, which received criticism for the public shouldering the burden of unsold dwellings, this approach is designed to address the unsold accumulation and encourage construction companies' self-reforms.
A Ministry of Land, Infrastructure and Transport official said, "It is significant to provide liquidity to construction companies and induce self-reform efforts," adding, "HUG's primary role is to guarantee the sale of pre-sold apartments, but if unsold dwellings continue to accumulate, it will ultimately lead to guarantee accidents, which in turn will result in deficits for HUG, so this is a preventive measure."
If the supplementary budget passes, briefings and project announcements will be held within a month. The Ministry of Land, Infrastructure and Transport predicted an annual demand of about 3,000 dwellings, but noted that if demand is higher, it may consider increasing the amount.
The government has formulated this policy due to the recent significant increase in unsold dwellings, especially in the provinces. As of April, there are 51,888 unsold dwellings in the provinces. When unsold dwellings occur, construction companies struggle to repay real estate project financing (PF) and have difficulty securing construction costs. If HUG supports 50% of the sale price at this time, it will provide liquidity relief for the construction companies.
However, unsold dwellings in the metropolitan area are excluded from the targets. A Ministry of Land, Infrastructure and Transport official stated, "The polarization of the housing market between the metropolitan area and the provinces is more serious than before, and housing demand is concentrated in the metropolitan area, which makes expectations for resolving unsold dwellings darker than in the past," adding, "Therefore, the unsold buy-back assurance policy will only be promoted in the provinces, excluding the metropolitan area."
The construction industry is also welcoming the provincial unsold housing resolution policy. A representative from a construction company said, "When unsold dwellings occur in provincial business sites, it often has a devastating effect on cash flow," adding, "Receiving 50% support allows us to put out the immediate fire."
Lee Eun-hyung, a researcher at the Korea Construction Policy Institute, stated, "Once the construction costs are secured, it seems feasible to support business sites that can sell the dwellings," adding, "This approach carries less risk than obtaining loans through private financing, so it is not a bad policy from the perspective of construction companies."