"'Sale Rights Transactions' Virtually Phased Out... Where Will the Lost Funds Head?"

Metropolitan Area Overconcentration Control and Growth Management Zones, Prohibition of Resale in Metropolitan Cities
De Facto Closure of Pre-sale Rights Trading Market
Excess Funds Flowing to Seoul, New Apartments, and Existing Pre-sale Rights
Construction Companies Expected to Push Sales to Avoid Regulations from May to August

[Asia Economy reporters Moon Jiwon and Lee Chunhee] As the government plans to expand the areas where the resale of pre-sale rights is prohibited, the market for trading pre-sale rights of private apartments in the metropolitan area and major provincial cities is inevitably expected to shrink starting this August. However, concerns are being raised that, amid the ultra-low interest rate environment and abundant idle funds in the market, investors who withdraw from the new pre-sale market will flock to newly built apartments or available pre-sale rights listings, creating a 'balloon effect.' Some also predict that the volume of 'push-out pre-sales' by construction companies trying to evade regulations will increase significantly.

According to industry sources on the 12th, the government plans to strengthen the resale restriction period for housing supplied in private land areas within the metropolitan area's overconcentration control zones and growth management zones, as well as urban areas of major provincial cities, to last until the ownership transfer registration is completed. To this end, the Ministry of Land, Infrastructure and Transport (MOLIT) intends to revise the Enforcement Decree of the Housing Act by August, but it is reported that they have set a policy to implement the revised regulations as early as July to minimize side effects.

◆Effectively Banning Pre-sale Rights Trading= This measure reflects the government's determination to actively regulate the pre-sale rights markets in the metropolitan outskirts and provincial areas, which have previously caused balloon effects. Notably, the government has introduced a regulation based on 'zones.' By designating the metropolitan area's overconcentration control zones and growth management zones as areas where resale is prohibited, the government has imposed more comprehensive regulations than the previous designation of speculative overheating districts and adjustment target areas at the city, county, and district levels.

Accordingly, the newly banned areas for pre-sale rights resale include Incheon and Gyeonggi-do cities such as Siheung, Pyeongtaek, Gunpo, and Osan. Except for areas with almost no housing price pressure, such as Gwangju, Yeoju, Icheon, Gapyeong, Yeoju County, and parts of Yongin, pre-sale rights trading is effectively frozen across the entire metropolitan area.

The industry views this measure as a step toward the effective exit of pre-sale rights trading from the market for the first time in 22 years. Pre-sale rights trading was introduced in August 1998 during the Kim Dae-jung administration as part of measures to revitalize the housing market. Since then, the scope and period of resale restrictions have been partially adjusted according to market conditions, but this time, by designating most metropolitan areas as resale-prohibited zones, buying and selling pre-sale rights before apartment move-in has become impossible. Especially from the first half of 2023, when the move-in of complexes supplied before the resale ban is completed, the pre-sale rights trading market is expected to effectively close.

A MOLIT official explained, "Adjustment target areas may change depending on circumstances, but zones do not. This regulation fundamentally means that pre-sale rights resale is not allowed in the metropolitan area and major cities."

◆Short-term Speculative Demand to Decrease but Balloon Effect Feared= This measure is expected to significantly reduce short-term speculative demand aiming for pre-sale rights resale in the metropolitan new pre-sale market. According to MOLIT's survey, among complexes supplied in private land areas in the metropolitan area and major cities from 2017 to 2019, one in four places with a subscription competition rate exceeding 20 to 1 saw pre-sale rights sold within six months. This suggests that one of the main causes of overheated new subscriptions was speculative demand seeking short-term capital gains through pre-sale rights trading.

In particular, non-regulated areas in the metropolitan region, such as Pyeongtaek, currently show signs of overheating, with widespread under-the-table contracts centered on complexes where resale restrictions have been lifted. Ham Youngjin, head of Zigbang Big Data Lab, predicted, "Most gaps in the pre-sale rights resale market will be sealed, and related transactions are expected to decrease."

However, since demand for newly built apartments remains high, there is speculation that buying sentiment may concentrate on existing pre-sale rights that can be resold. There is also a high possibility of increased remote transactions to areas exempt from this regulation, such as Cheonan in Chungnam and Jeonju in Jeonbuk. The industry expects idle funds to flow into the Seoul pre-sale market or the existing apartment trading market. With fewer investment options, a renewed craze for a 'smart single property' may emerge. In this case, the threshold for Seoul subscriptions may rise further for real demand buyers in their 20s and 30s, who have low subscription scores and find it difficult to win pre-sale rights.

◆Push-out Pre-sales Likely to Increase= The resale restriction applies to complexes that have applied for move-in recruitment announcements after the revised Enforcement Decree of the Housing Act takes effect. Since it is not retroactive, complexes sold before the decree revision can avoid the regulation. Therefore, the industry expects investment demand to concentrate on the last available resale units before August, while construction companies are also likely to flood the market with units to evade regulations.

A representative example is Incheon. Songdo International City has had only a six-month resale restriction, and major complexes supplied this year have all recorded triple-digit competition rates, showing overheated subscription. Currently, in Songdo, 'The Sharp Songdo Centennial' (342 units), 'Hillstate Lake Songdo Phase 3' (1,110 units), and 'Songdo Xi' (1,524 units) are scheduled for pre-sale this year. Among these, The Sharp Songdo Centennial and Hillstate Lake Songdo Phase 3 are expected to be pre-sold before June.

Complexes originally scheduled for general sale around September may rush their pre-sale preparations to avoid being subject to the first resale restriction. Complexes scheduled for September pre-sale in the target areas include the Cheongcheon 2 District redevelopment in Bupyeong-gu, Incheon (5,139 units), and 'Forena Incheon Yeonsu' in Yeonsu-gu (886 units). Some companies are reportedly considering ways to expedite administrative procedures such as permits as much as possible.

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