"HUG Price Regulation and Ceiling System"... Delays Expected in Multiple Housing Complexes (Comprehensive)

[Asia Economy Reporters Yuri Kim, Onyu Lim] With the private land sale price ceiling system being fully implemented from the 29th, the redevelopment and reconstruction sales market, which accounts for 70-80% of housing supply in Seoul, is falling into uncertainty.

The Ministry of Land, Infrastructure and Transport expects that when the price ceiling system is applied, the general sale price will be about 5-10% lower than the price currently set through high-priced sale reviews during the issuance of sale guarantees by HUG. This is because the sale price must be calculated only based on the government-announced basic construction cost (as of March, 6,336,000 KRW per 3.3㎡), land cost, and additional costs, which are announced twice a year. Experts believe that if the sale price is set lower than the already controversial HUG prices, which were subject to excessive price control, concerns over supply contraction will intensify. After the 'push-out' sales to avoid the ceiling system, reluctantly accepted as 'rock-bottom prices' by complexes, are completed, a greater supply contraction is expected.

◆ One Bailey and Dunchon Jugong 'Apply for Now'... Leaving Room for Post-Sale

According to the industry on the 28th, large complexes in the Gangnam area of Seoul, where sales were expected before the implementation of the price ceiling system, are leaving room for pre-sale by 'applying for now' and plan to keep the possibility of post-sale open, so the sales schedule has not been finalized. The Dunchon-dong Jugong Apartments in Gangdong-gu submitted the resident recruitment announcement approval application on the 27th, the day before the grace period ended. The Shinbanpo 3rd and Gyeongnam reconstruction (Raemian One Bailey) in Seocho-gu are also scheduled to submit applications on the 28th.

The Raemian One Bailey association decided to determine the final sale method by comparing the HUG-notified sale price and the price under the price ceiling system within the two-month validity period of HUG's sale guarantee and choosing the one with less loss. HUG previously notified an average general sale price of 48.91 million KRW per 3.3㎡ for this complex. This was significantly lower than the association member sale price (55.6 million KRW), causing strong opposition within the association. An association official said, "48.91 million KRW is similar to the price at the time of the Seocho Woosung 1st sale three years ago, and the members also want post-sale," adding, "After more than 10 simulations of the price ceiling system, the result was between 52 million and 60 million KRW. Even conservatively, it is 52 million KRW, but since we do not know how the government-announced price ceiling price will come out, we plan to assess the situation."

The Dunchon Jugong complex, with 12,031 households, received a guarantee from HUG at a general sale price of 29.78 million KRW per 3.3㎡. This is also significantly lower than the association's expected amount (35.5 million KRW). The emergency countermeasure committee within the association (Dunchon Jugong Association Members' Group) is opposing, claiming that even if the price ceiling system is applied, the price can be set higher than the current sale price. An association official said, "The land cost appraisal for the price ceiling system applied to Gangdong-gu Office is also underway," adding, "Based on this, a sale price comparison selection general meeting is scheduled for September 5."

◆ "Concerns over supply contraction will intensify after full application of the price ceiling system"

The industry is concerned that supply contraction due to the implementation of the price ceiling system is inevitable. According to Real Estate 114, the number of new sales in Seoul is expected to shrink from 20,488 households next month to 2,548 households in September. The number of sales in October (4,231 households), November (2,904 households), and December (1,760 households), which are considered peak autumn seasons, is also not high. The industry analyzes that this is because the profitability of redevelopment and reconstruction associations deteriorates as the general sale price decreases, leading to more complexes postponing their projects.

Complexes that cannot even catch the last train before the price ceiling system is applied are also willing to choose post-sale. The Shinbanpo 15th (Raemian One Pentas) reconstruction in Banpo-dong, Seocho-gu, is unlikely to avoid the price ceiling system as legal disputes with Daewoo Construction are ongoing during the process of changing the contractor from Daewoo Construction to Samsung C&T. A resident said, "The sale prices in Gangnam are already far below market prices due to HUG price control, and if the sale price is lowered further here, only general buyers will make a huge profit," adding, "It is better to delay the sale."

In addition, the Misung and Clover reconstruction associations in Sincheon-dong, Songpa-gu, and the Jinju Apartment reconstruction association are known to have already decided on a post-sale policy. A Misung and Clover association official said, "Currently, demolition is in the final stages, and the Misung and Clover association has never discussed pre-sale." The Bangbae 6 District (Acro Bridge) in Bangbae-dong, Seocho-gu, Seoul, where relocation and demolition have been delayed due to conflicts with commercial tenants, is also expected to be unable to avoid the price ceiling system as sales are postponed. A Daelim Industrial official said, "Bangbae 6 District is no longer included in the plan for sales within this year."

A maintenance project official said, "With the implementation of the price ceiling system and the strengthening of resale restrictions on metropolitan area sale rights, the speed of project progress for each association may slow down," adding, "This will be a factor that increases concerns about supply reduction in major areas such as Seoul, where supply is mostly through maintenance projects." In fact, after the introduction of the private land sale price ceiling system in 2007, a supply cliff phenomenon occurred in Seoul for two years. The number of permits in Seoul, which reached 50,000 households in 2007, sharply dropped to 21,900 households in 2008 and 26,600 households in 2009. An industry official said, "Due to financial cost burdens, complexes close to sale cannot indefinitely postpone their projects, but early and mid-stage maintenance projects can adjust their pace," adding, "Considering the time lag, supply reduction may materialize in 1-2 years."

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