Housing Shortage Sparks 'Private Rental Apartment' Boom... "Be Cautious of Uncertain Sale Conversion"

Popular from the metropolitan area to provinces, comparable to sale apartments
Triple-digit competition rates at Shinasan Moa Elga Vista Phase 2, etc.
No separate standard for sale price calculation... possibility of high sale prices
Some complexes lack priority rights for residents in sale conversion

Seoul apartment view seen from the Lotte World Tower Observatory in Songpa-gu, Seoul / Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Ryu Taemin] As apartment sale and jeonse prices soar to unprecedented heights, demand for private rental apartments is surging. Competition rates in the triple digits, comparable to those of general sale apartments, are becoming common. This is due to the highlighted advantages of relatively affordable prices, stable residence for a certain period, and the option to convert to ownership later. However, unlike public rental apartments, private rentals lack separate standards for calculating sale prices, and many complexes have uncertain sale conversion prospects, so experts advise caution.

Private Rentals as Popular as General Sales

According to the real estate industry on the 20th, the ‘Shin Asan Moa Elga Vista 2nd Phase’ in Asan-si, Chungnam, which held a subscription last month, attracted 186,358 applications for 998 units, recording an average competition rate of 186 to 1. For the 84㎡ (exclusive area) units, 368 units received 143,092 applications, reaching a competition rate of 388 to 1. Compared to the first phase supply of this apartment in November last year (average 48.5 to 1), this is nearly four times higher.

The situation was similar for the ‘Pyeonghwa Square Moa Elga Vista’ in Mokpo-si, Jeonnam, which conducted online subscriptions from the 9th to the 12th. With 217 units supplied, it received 32,118 applications, showing a competition rate of 148 to 1. Additionally, the ‘Sinnae Station City Pradium’ supplied earlier this year in Mangwoo-dong, Jungnang-gu, Seoul, also closed subscriptions early with 3,408 applicants for 943 units.

Private rental apartments allow residents to live on rent for a certain period before deciding whether to convert to ownership. Anyone can apply regardless of whether they hold a subscription savings account, income restrictions, or home ownership. Another advantage is that, as rental apartments, they are exempt from acquisition tax and property tax. Consequently, some recently supplied private rental occupancy rights have been traded at premiums ranging from several million to tens of millions of Korean won immediately after sale. This is due to expectations of profits if the sale price at conversion is lower than the market price, attracting not only actual demand but also investment demand.

Uncertain Sale Conversion and Pricing... ‘Potential Risks’

However, experts point out that unlike public rentals, private rentals carry risks regarding sale prices at conversion. Current laws do not specify regulations for calculating sale prices upon conversion. This means developers can autonomously set the sale price.

Choi Eunyoung, director of the Korea Urban Research Institute, explained, “Unlike public rental apartments, private rentals lack regulations related to sale prices, so construction companies can set prices as high as they want. Especially during periods of rapid housing price increases like now, conflicts related to this can intensify.” In fact, the contract for ‘Pyeonghwa Square Moa Elga Vista,’ which completed online subscriptions on the 12th, states that “the sale price at conversion will be decided by the lessor.”

There is also a possibility that sale conversion may not occur after the rental period expires. The contract for ‘Sinnae Station City Pradium,’ which completed subscriptions in January, specifies that “no priority for sale conversion will be granted to tenants after the mandatory rental period ends.” The contract for ‘Shin Asan Moa Elga Vista 2nd Phase’ also includes a clause stating that “sale conversion is not confirmed.”

Yeokyunghee, senior researcher at Real Estate 114, advised, “Since the standards for sale price calculation and sale conversion vary by complex in private rental apartments, caution is necessary. It is important to carefully review the contract before deciding whether to sign.”

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