From Tomorrow, Private Land Sale Price Ceiling System Applied... Concerns Over Supply Cliff

[Asia Economy Reporter Yuri Kim] From the 29th, the pre-sale price ceiling system will be applied to private land apartments for sale in Seoul, Gwacheon, Hanam, Gwangmyeong, and other areas. It is expected that the general sale price will be 5-10% lower than before due to the implementation of the ceiling system. Amid the current situation where 'lottery sales' priced several hundred million won cheaper than market prices are emerging due to the Housing and Urban Guarantee Corporation (HUG)'s control over pre-sale prices, the implementation of the ceiling system is expected to further fuel the overheating of subscription demand. Some concerns have also been raised that supply delays by redevelopment and reconstruction associations may follow due to deteriorating profitability. ▶Related article on page 3

According to the Ministry of Land, Infrastructure and Transport and the maintenance industry on the 28th, as the grace period for the private land pre-sale price ceiling system ends on this day, the ceiling system will be applied to apartments in major metropolitan areas that apply for approval of resident recruitment announcements from the 29th. The applicable areas include 309 buildings in 18 autonomous districts in Seoul and 13 buildings in 3 cities in Gyeonggi Province. In Seoul, the entire 13 districts including Gangnam, Seocho, Songpa, and Gangdong districts, 37 buildings within Gangseo, Nowon, Dongdaemun, Seongbuk, and Eunpyeong districts, and some areas in Gwacheon, Gwangmyeong, and Hanam cities in Gyeonggi Province are subject to the system.

The designation of ceiling system targets is made through the Residential Policy Deliberation Committee after meeting one of the following conditions in speculative overheating districts: ▲a 12-month pre-sale price increase rate exceeding twice the inflation rate ▲a subscription competition rate exceeding 5:1 in the previous two months ▲a 3-month housing transaction volume increasing by more than 20% compared to the same period last year. Originally, the Ministry of Land planned to implement the private land ceiling system from the end of April, but extended the grace period by three months considering delays in maintenance projects due to the COVID-19 pandemic.

The Ministry of Land expects that when the pre-sale price ceiling system is applied, the general sale price will be about 5-10% lower than the price currently set through HUG's high pre-sale price review process during the issuance of pre-sale guarantees. 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.

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

In fact, after the introduction of the private land pre-sale price ceiling system in 2007, a supply cliff phenomenon appeared in Seoul for two years. The number of permits in Seoul, which reached 50,000 units in 2007, sharply decreased to 21,900 units in 2008 and 26,600 units in 2009.

An industry official said, "Due to the burden of financial costs, complexes close to pre-sale cannot indefinitely postpone their projects, but early and mid-stage maintenance projects can adjust their pace," adding, "Considering the time lag, a decrease in supply may become a reality in 1 to 2 years."

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