‘Highly Popular’ Private Rental Housing, Conversion to Sale and Sale Prices Remain ‘Unknown’... Investment Warning Issued

No Separate Standards for Sale Price Calculation... High Possibility of Expensive Sale Prices
Some Complexes Lack Priority for Residents in Sale Conversion

Apartment buildings in the Seoul area (Photo by Yonhap News)

[Asia Economy Reporter Ryu Tae-min] Despite the recent slowdown in the real estate market, private rental apartments remain popular. As housing prices have skyrocketed and tax burdens from home ownership have increased, the relatively affordable prices and the advantage of being able to convert to ownership have become prominent. Competition rates often exceed triple digits. However, since there are no separate standards for calculating sale prices and many complexes have uncertain sale conversion statuses, caution is needed when investing.

According to the real estate industry on the 5th, ‘Hillstate Indeokwon’ in Poil-dong, Uiwang-si, Gyeonggi Province, which held a subscription last month, attracted 80,892 applications for 349 units, recording an average competition rate of 231.8 to 1. The highest competition rate in this complex was for the 74㎡ type, reaching 847.7 to 1.

In December last year, ‘Daegu Hoban Summit Hive Park,’ which held a subscription in Daegu, known as the ‘graveyard of unsold units,’ received about 100,000 applications for 446 units, recording an average competition rate of 240 to 1. In November of the same year, ‘Dongducheon Jungheung S-Class Hera City’ in Dongducheon, Gyeonggi Province, attracted 166,169 applications for 446 units, setting an all-time high average competition rate of 356.5 to 1 for private rental apartments.

Private rental apartments allow residents to live on rent for a certain period before deciding whether to convert to ownership. The purpose is to supply quality housing to the middle class over the long term. Anyone can apply regardless of subscription savings or home ownership, and there are no income restrictions. Since it is technically a rental rather than ownership, taxes such as acquisition tax or comprehensive real estate tax are not levied, which is an advantage. Because there are no resale restrictions, premiums ranging from hundreds of thousands to millions of won are being added to the right to move in shortly after sale.

Still Unclear Sale Prices and Conversion... ‘Potential Risks’

However, experts point out the risk that sale conversion may not occur. Since there are no legal standards for the method of sale conversion under current laws, early sales may occur just a few months after moving in, or conversion may not happen at all. Recently, cases have emerged where the rights to convert rental units to ownership are sold separately, but there are no means to protect tenants.

Unlike public rental housing, private rentals have no set standards for calculating sale prices, increasing risks. Public rentals must calculate sale prices based on various indicators such as appraisals and standard construction costs at conversion, but private rentals have no separate regulations, allowing developers to set prices autonomously. This means developers can set high prices without legal issues. For example, ‘Wirye Hoban Summit,’ a private rental apartment in Hakam-dong, Hanam-si, Gyeonggi Province, decided on early sale conversion about nine months after moving in last November, offering a sale price more than double the rent.

Criticism is also rising that the original purpose of supplying housing centered on actual demand is disappearing as short-term speculative demand floods subscriptions, causing competition rates to soar. Attorney Kim Ye-rim of Deoksu Law Firm said, “Recently, premiums on private rental apartments have increased, raising the burden on actual buyers,” adding, “Minimum standards for sale price calculation and conversion methods, which have been controversial, need to be established to reduce damages to buyers.” Attorney Kim also advised, “Since sale price calculation standards and conversion vary by complex, caution is necessary. Contracts should be carefully reviewed before deciding whether to sign.”

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