"The Government Trying to Curb High Sale Prices Is Ultimately Blocking Supply Expansion Itself"

HUG Sale Prices Far Below Market
Conflicts with Associations Seeking Fair Value
Repeated Delays in Sales Create Vicious Cycle
"Unfounded Opaque Pricing Criteria
Fuel Lottery-Style Applications and Market Price Distortion"
Minority Monopoly on Profits... Breeding Speculation

[Asia Economy Reporter Yuri Kim] "Maintenance projects account for 70-80% of housing supply within Seoul. Artificially suppressing this market through price controls inevitably leads to various problems." (An official from a reconstruction association in Seocho-gu, Seoul)

Ahead of the government's housing supply plan announcement, the Housing and Urban Guarantee Corporation (HUG), which monopolizes the pre-sale guarantee market, has once again come under scrutiny for its 'high pre-sale price review.' With the upcoming private land pre-sale price ceiling system this year, each redevelopment and reconstruction association is desperately trying to avoid it, but excessive price controls by HUG are causing frequent project delays. Considering that the government is indirectly intervening in the market through HUG's price controls, criticism arises that the government itself is blocking supply expansion.

◆'Opaque Price Calculation'... HUG Does Not Provide Basis for Pre-sale Price Setting

Currently, HUG's high pre-sale price regulation faces criticism for infringing on private property rights, distorting market prices, and encouraging 'lottery-like subscription' phenomena.

HUG's current method for guaranteeing pre-sale prices for apartments in Seoul is to set prices at the same level as apartments sold within the past year in the vicinity, and if more than a year has passed, to set prices within a range not exceeding 105%. The most contentious criterion here is the definition of 'vicinity.' Prices are set simply by grouping areas by administrative districts without considering living zones or other factors.

This has become a major cause of pre-sale delays. Last year, HUG demanded that the pre-sale price of Raemian La Classe (Sang-A 2nd complex) in Samseong-dong, Gangnam-gu, be set at the level of The H Forecent (Daewoo Apartments) in Ilwon-dong (45.69 million KRW per 3.3㎡), which triggered post-sale issues and eventually led to the introduction of the private land pre-sale price ceiling system.

A representative complex currently embroiled in pre-sale price conflicts is Dunchon Jugong in Gangdong-gu. Due to the large gap between HUG's notified pre-sale price (29.78 million KRW per 3.3㎡) and the association's proposal (35 million KRW), the timing of pre-sale remains uncertain. A member of this association said, "I cannot understand why the pre-sale price is lower than that of e-Pyeonhansesang in Hwayang-dong, Gwangjin-gu, which has a lower official land price (33.7 million KRW). Ultimately, this means placing more burden on association members while giving cheaper houses to general buyers."

There is even a phenomenon where pre-sale prices in Gyeonggi Province and Seoul's station areas are reversed. In April, the average pre-sale price per 3.3㎡ of DMC Riverfore Xi in Deok-eun District, Goyang-si, Gyeonggi Province, was 26.3 million KRW. The DMC Rivercity Xi, also sold in the same month, was priced at 25.83 million KRW. However, pre-sale prices for Seoul's Eunpyeong-gu Susaek 6 and 13 districts, which share the same DMC living zone, were reportedly notified below 20 million KRW. This is similar to the level of Susaek 9 district, sold 1 year and 8 months ago (19.65 million KRW). Considering actual transaction prices nearby, there is a price difference of 400 to 500 million KRW. A maintenance industry official said, "They say it's due to the 'expensive land cost' in Deok-eun District, but if the standard is unreasonable by common sense, it should be corrected."

Archive photo / Photo by Mun Ho-nam munonam@

◆Profits Are Monopolized by a Few... "The Government That Claims to Eradicate Speculation Is Creating a Speculation Playground"

The problem with artificial pre-sale price control is not limited to supply contraction due to pre-sale delays. It fosters a 'dual pricing' between new supply and the market, causing considerable side effects. From the perspective of reconstruction and redevelopment associations, dissatisfaction with the policy grows as they feel their share is taken away by general pre-sale winners. The enormous profits do not accrue to the public either. Only a few general pre-sale winners enjoy several hundred million KRW in capital gains. This process also spreads further distrust. Young people with low subscription scores, who are excluded, grow angry at the government, asking, "Why don't we get a chance to win cheaper apartments?"

Experts agree that pre-sale prices should be lower than market prices but point out that excessively low prices can be detrimental to the market stability the government aims for. Seong-gyu Doo, Senior Researcher at the Korea Research Institute for Construction Industry, said, "The structure of the subscription market, where winners gain 400 to 500 million KRW in capital gains, is distorted. It causes latent demand, who considered home ownership a distant future, to join the subscription market, and those pushed out eventually become existing market participants."

There are concerns that these problems could worsen with the implementation of the private land pre-sale price ceiling system. It is expected that Seoul apartment pre-sale prices will fall 5-10% lower than HUG's regulation once the ceiling system is enforced. A maintenance project official said, "Promising chances to win at prices much lower than market prices is politics, not policy. If the government truly wants to expand supply, it must first resolve these structural contradictions."

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