"HUG Housing Warranty Monopoly Side Effects... Urgent Need to Establish Housing Business Mutual Aid Association"

[Asia Economy Reporter Onyu Lim] There has been a call to establish a Housing Business Mutual Aid Association to gradually open up the housing guarantee market.

On the 10th, Kim Deok-rye, Head of Housing Policy Research at the Korea Housing Institute, stated at an online public hearing on the "Plan to Establish a Housing Business Mutual Aid Association" that the monopoly of housing sales guarantees by the Housing and Urban Guarantee Corporation (HUG) has caused side effects such as delays and suspensions in housing projects, disruptions in housing supply, and overheating of subscription applications.

In March 2017, HUG announced the "Standards for Handling Sales Guarantees for High-priced Projects" under the pretext of managing guarantee risks, and has been refusing guarantees due to high prices within its monopoly system. Regarding this, Kim emphasized, "In the absence of effective legal grounds, HUG is effectively controlling sales prices," and added, "The justification that it is necessary for guarantee risk management is not valid." Just before HUG established its guarantee handling standards, the number of guarantee accidents was only 4 cases in 2015 and 2 cases in 2016, and most of the subrogation payments for the affected projects were recovered, resulting in virtually no losses.

Kim further pointed out, "More than 100,000 housing units in the metropolitan area alone have been delayed due to HUG's refusal of sales guarantees and forced downward adjustment of sales prices," adding, "With scarce new sales supply, competition for sales has overheated, and disappointed buyers who failed in lottery sales have turned to the resale market, causing side effects of driving up resale prices."

Additionally, Kim raised concerns that despite the decline in guarantee accident rates and increase in recovery rates, HUG has realized more than double the guarantee fee revenue over five years without timely reductions in guarantee fee rates. HUG's net profit in 2018 (512.8 billion KRW) increased 2.3 times compared to 2012 (220.5 billion KRW).

Kim stated, "Although housing developers prepay HUG's guarantee fees, these costs are ultimately reflected in sales prices, burdening non-homeowning low-income households," and criticized, "While HUG demands price reductions from housing developers, it has been profiteering by emptying the pockets of non-homeowning low-income citizens."

He emphasized, "It is urgent to improve the monopolistic profiteering structure and establish a competitive institution that can rationalize guarantee fees," and added, "Considering the need to secure investment from developers to build a fully competitive system with HUG and the period required for HUG to prepare alternative revenue sources, a phased full opening through the establishment of a Housing Business Mutual Aid Association is appropriate."

The Korea Housing Builders Association has been promoting the establishment of the Housing Business Mutual Aid Association since June. The association aims to launch the association by July 1 next year through amendments to the Housing Act and regulations on housing supply.

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