The government’s ‘unsold housing purchase guarantee’ project, which involves buying unsold apartments in the provinces at half the sale price before completion and then reselling them to construction companies after completion, faced obstacles from the early stages. This is because the budget for the government's unsold housing purchase guarantee project was cut by more than 15% due to concerns about 'construction companies' moral hazard.'
Additionally, negative projections regarding the slow recovery of the local housing market have raised doubts about whether the unsold housing issue can be effectively resolved through this policy.
According to the Ministry of Land, Infrastructure and Transport and the National Assembly on the 8th, the budget for the unsold housing purchase guarantee project under the Ministry's second supplementary budget has been confirmed at 250 billion won, a 16% reduction. Initially, the government had set the budget for this project at a total of 300 billion won, including 200 billion won from government investment and 100 billion won in loans.
However, the National Assembly cut the budget by 50 billion won out of concern for the moral hazard of construction companies. The National Assembly noted, 'If construction companies supply excessively without considering the risks of unsold properties, moral hazard issues may arise where the government purchases them,' and emphasized that 'this is merely a stopgap that solves only the short-term liquidity problems of corporations, hence the need for a reduction.'
The unsold housing purchase guarantee involves the Korea Housing & Urban Guarantee Corporation (HUG) purchasing unsold dwellings before completion at about 50% of the sale price, after which the project entity repurchases them after completion. This project was first introduced during the 2008 financial crisis to alleviate the financial difficulties of construction companies affected by unsold properties. The government has set a goal of purchasing an average of 3,000 units annually through the unsold housing purchase guarantee project and aims to buy 10,000 units by 2028. As of May, there are 28,975 unsold dwellings before completion in the provinces.
From the government's perspective, the initial budget for the project being reduced has diminished the momentum for promoting the conditional repurchase of unsold dwellings before completion. HUG now faces the burden of needing to secure funds for the project independently if there are no adjustments to the project target.
It appears that the planned housing purchase prices anticipated by the government in the unsold housing purchase guarantee project are lower than those in 2011, which may hinder the promotion of this project. According to the National Assembly Budget Office, the Ministry of Land, Infrastructure and Transport has set the purchase cost per unsold apartment before completion at 244 million won. This is lower than the average purchase price of 253 million won (as of 2011) under the conditional repurchase policy implemented during the financial crisis. However, due to recent construction price increases, the sale prices have risen significantly. The national average sale price of private apartments soared from 8.4 million won per 3.3 square meters in 2012 to 19.32 million won this past May.
Critics argue that the unrealistic housing purchase prices could mean that the government’s plans for resolving unsold properties may not be properly achieved. If higher purchase costs are incurred from limited resources than expected, there are concerns that the target for purchasing unsold dwellings before completion will not be met.
The National Assembly Budget Office pointed out, 'Even if the area and region of target dwellings remain the same as in the past, the significant increase in sale prices leads to an inevitable rise in purchase costs.' They also noted that many of the dwellings remaining unsold before completion are priced relatively high compared to the attractiveness of the apartments, considering factors such as location, which means that a careful preliminary investigation into the sale prices that serve as the basis for purchase prices is necessary.
In particular, the speed of recovery in the local real estate market is likely to determine the success or failure of the unsold housing purchase guarantee project. If the local real estate slump continues, construction companies could confirm losses at around 50% without repurchasing the homes sold to the government.
When the conditional repurchase policy was previously implemented, it was during a period of external shocks due to the global financial crisis, and a quick recovery was observed through liquidity supply and other measures. At that time, the local housing market maintained a gradual recovery based on various national projects, such as innovation city development and industrial complex establishment, and construction companies completed sales within the repurchase period and recovered funds.
However, this time, even if the government purchases unsold dwellings in the provinces, it is uncertain whether the construction companies will be able to complete sales within the repurchase period and recover their funds. Currently, strong lending regulations targeting multiple homeowners and areas such as Seoul have reinforced the ‘one good property’ phenomenon. There have been no sophisticated measures yet to recover the local real estate market. Moreover, unlike in the past, the causes of unsold properties in the local housing market stem from complex and structural factors such as regional extinction crisis, rising raw material prices, and excessive supply without considering demand, raising concerns about long-term stagnation.
A person in the construction industry noted, 'The unsold housing purchase guarantee project ultimately relies on the housing market itself improving.' They added, 'For repurchases to occur in a cyclic manner, construction companies need to have confidence that they can sell the homes back at prices higher than what they sold to HUG before the end of the repurchase period.'
The same person further stated, 'However, if the housing market deteriorates, they may try to finalize losses by selling cheaply to HUG. For this project to be properly implemented, the housing market, especially in the provinces, needs to improve to a level where housing can be absorbed.'