Three Years of Misguided Control on Sale Prices

The Paradox of HUG Regulations
"House Price Stability Lost, Only Lotto Cheongyak Frenzy Remains"

[Asia Economy Reporter Onyu Lim] "Housing price stabilization is out of reach, and only the lottery subscription frenzy remains."

This is the result of three years of price control on pre-sale prices by the Housing and Urban Guarantee Corporation (HUG). The government's plan to stabilize housing prices by suppressing soaring pre-sale prices is also being evaluated as a failure. Instead, competition for subscription has intensified among those expecting several hundred million won in capital gains, and reconstruction and redevelopment associations, exhausted from the tug-of-war with HUG, are suffering from internal and external conflicts.

◆ Three years of HUG pre-sale price control, housing prices rather surged = HUG began intervening in the pre-sale prices of private apartments in March 2017. They established the 'High Pre-sale Price Project Pre-sale Guarantee Processing Standards,' which refused to issue pre-sale guarantees if the pre-sale price was set excessively higher than nearby areas. The intention was to break the link where 'pre-sale price increases' lead to 'housing price increases' by using pre-sale guarantees not for their original purpose but as a means to control pre-sale prices.

The goal was not achieved. According to the Korea Real Estate Board, in Seoul, where all 25 autonomous districts are designated as high pre-sale price management areas, housing prices rose 6.22% last year, the highest in 10 years. In particular, apartment sale prices increased by 8.03%. Currently, high pre-sale price management areas outside Seoul include Gwacheon, Gwangmyeong, Seongnam Bundang, Hanam in Gyeonggi Province; Dongnae, Suyeong, Haeundae districts in Busan; Suseong and Jung districts in Daegu; Gwangsan, Nam, Seo districts in Gwangju; Seo and Yuseong districts in Daejeon; and Sejong City.

◆ Only the lottery subscription frenzy remains = Pre-sale price control led to a lottery subscription frenzy. While housing prices rose, pre-sale prices fell, attracting many hoping for 'several hundred million won in capital gains,' causing the subscription market to boom. Even those who initially had no intention of buying a home were drawn in. Triple-digit competition rates became common. For example, in November last year, 6,575 people applied for 31 units at Le El Daechi in Daechi-dong, Gangnam-gu, Seoul. When it became known that the pre-sale price was only half of the nearby actual transaction price, the competition rate reached 212 to 1. As a result, people in their 30s with low points lost the chance to win subscriptions in Seoul and the metropolitan area, and for medium to large units selected by lottery instead of points, it turned into a feast for wealthy tenants. Last year’s most popular real estate buzzword was 'Cheongmupisa (Subscription? No way, buy by paying a premium).'

◆ Associations hampered by pre-sale price tug-of-war = Reconstruction and redevelopment complexes are also facing difficulties in project progress due to HUG’s pre-sale price control. A representative project site is the Dunchon Jugong Apartments in Gangdong-gu, Seoul, known as the 'largest reconstruction since Dangun.' HUG currently proposes 29.7 million KRW per 3.3㎡, which falls far short of the association’s desired 35.5 million KRW per 3.3㎡. They are in a hurry to complete the resident recruitment announcement before the implementation of the private land pre-sale price ceiling system in April, but negotiations over pre-sale prices are holding them back. Some association members are blaming the chairman’s incompetence and have even collected signatures for a 'dismissal consent motion.'

Although groundbreaking recently took place, voices calling for a 'post-sale conversion' still persist. However, post-sale does not require HUG’s pre-sale guarantee but involves greater risks related to capital procurement and real estate market conditions, causing divisions within the association. Kim Deok-rye, head of the Housing Policy Office at the Korea Housing Industry Research Institute, pointed out, "The original purpose of the pre-sale guarantee was to protect buyers, not to control prices," adding, "This is not in line with the original intent, and in a situation where there is no alternative to HUG, such actions are tantamount to telling them not to proceed with the project."

This content was produced with the assistance of AI translation services.