Revised Price Ceiling System for Land Allocation Next Year... Will It Break the Supply Drought?

Surging Raw Material Costs Amid Price Controls on Apartment Sales
Leading to Urban Supply Shortages

Dunchon Jugong Reconstruction Site, Gangdong-gu, Seoul

Amid a continued housing supply drought caused by soaring raw material prices, attention is focused on whether the upcoming revision of the price ceiling system for pre-sale housing next week will provide a breath of fresh air to the pre-sale market.

According to data from the Ministry of Land, Infrastructure and Transport on nationwide housing construction performance as of the 17th, the volume of general pre-sale units (excluding rental and union member units) from the beginning of this year to April totaled 62,583 units, a 17.6% decrease compared to 75,957 units during the same period last year. In the metropolitan area, there were 32,302 units, down 7.53% year-on-year, while outside the metropolitan area, 30,281 units were supplied, marking a 26.19% decline.

The background to the supply drought in the first half of the year is attributed to consecutive elections and the resulting expectations of regulatory easing, which led construction companies to postpone pre-sales. The new government has announced plans to revise the price ceiling system for pre-sale housing and readjust the upper limit on apartment construction costs, focusing on easing real estate regulations. This created incentives for both construction companies and unions to wait for policy announcements in anticipation of price increases. Conflicts over construction costs due to rising building material prices have also been a major factor delaying pre-sales. The ongoing Dunchon Jugong reconstruction dispute arose from disagreements between the union and construction companies over increased construction costs during the process.

In this context, the government is set to announce the revision plan for the price ceiling system on the 21st, drawing attention to the contents expected to be included. The government believes that regulatory measures such as the price ceiling system have caused delays in pre-sales by redevelopment unions, disrupting the supply of new housing in urban areas. The revision plan is expected to realistically reflect construction costs due to rising building material prices and improve the price calculation method to favor unions. It is anticipated that the plan will include provisions to incorporate interest on relocation costs for redevelopment projects as additional charges under the price ceiling system and promptly reflect material cost increases in construction costs. The basic construction cost notification system, which is currently updated regularly (March and September) and on an ad hoc basis, is also expected to be revised.

Experts agree with this direction but call for more bold and swift regulatory easing. Kim Deok-rye, head of policy research at the Korea Research Institute for Housing and Urban Affairs, said, "The price ceiling system is implemented to curb excessive pre-sale price increases, but it has resulted in side effects that block new supply in speculative overheated districts. It is necessary to improve the price ceiling system to prohibit price controls outside designated ceiling areas and to timely and adequately reflect cost increase factors."

Meanwhile, the government plans to announce measures to stabilize the rental market alongside the revision of the price ceiling system next week. To ease the rent burden on tenants who have exhausted their right to renew leases after August, the government will increase support for policy funds such as low-interest jeonse loans and expand tax benefits for 'win-win landlords.' Additionally, measures to relax requirements for moving into mortgaged housing and actual residence requirements under the price ceiling system are expected to be included to encourage the supply of new rental units.

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