[Insight & Opinion] The Reality of Planning Sales Amid Fears of Unsold Inventory

In early 2020, there was a non-designated subscription for Bupyeong Doosan We've the Park in Incheon. This subscription was for four uncontracted units that had been won but not contracted, and an astonishing 47,626 applications flooded in, resulting in a lottery-level competition rate of 11,900 to 1. It was a time when the frenzy for non-designated subscriptions dominated Korea.

Subsequently, the government, concerned about the excessive competition rates for non-designated subscriptions, took measures to allow such subscriptions only within the relevant local area. Since then, it has become difficult for non-designated subscriptions to achieve competition rates of hundreds to thousands to one as in the past.

Then, in November 2021, the nationwide unsold housing units, which numbered 14,000, began to gradually increase, reaching 34,000 units as of August this year. Although this is still considerably lower than the peak of 160,000 unsold units during the financial crisis, there is a growing fear of unsold inventory casting a shadow over the real estate market again.

In September this year, Indeogwon Xi SK VIEW in Anyang was put up for sale. The subscription competition rate was popular, exceeding an average of 30 to 1, but the number of uncontracted units reached nearly 508, accounting for 56% of the total supply. Despite the critical regulation in speculative overheated areas like Uiwang City, where winners who forfeit contracts are banned from reapplying for 10 years, many still gave up. A non-designated subscription was held afterward, but the results were still poor because applications were accepted only from Uiwang City. Of course, expanding the area might ease the situation, but it is difficult to guarantee.

This case can be seen as the clearest indication of the cooling in the sales market. If we look for the cause of this rapid decline in subscription enthusiasm, it must be the recent rapid cooling of the housing market. As housing transactions have recently shown the fastest decline ever, the expectation that tomorrow’s prices will be lower than today’s is eliminating market demand. Indicators such as the sales supply-demand index, transaction data, loan statistics, and both quantitative and qualitative indicators all suggest the market is bottoming out. Such a drastic change caused subscription complexes that once had competition rates of dozens to one to see more than half of the contracts abandoned.

The key point is that this is not just the case with Indeogwon Xi SK VIEW. Future complexes awaiting sale must plan their sales amid concerns and even fears of unsold inventory, which is becoming an economic burden. Korea has already experienced problems derived from increasing unsold inventory during 2008?2011, such as real estate project financing (PF) issues and the resulting insolvency of financial institutions, construction companies, and developers. In 2008, more than 30 of the top 100 construction companies were forced into court receivership or similar procedures, and it took a very long time to overcome this. It is no coincidence that the Park Geun-hye administration, which began in 2013, introduced policies to activate the real estate market by reducing supply, stimulating demand, and expanding loans to resolve the risk of unstarted real estate PF projects.

Market participants aware of this painful past are watching the recent cooling of the real estate market and contraction of the subscription market with concern. Ultimately, a sentiment that the market will revive must spread, but it seems we will have to endure a period where it is difficult to find such grounds. If the situation worsens, improvements to the subscription system will be introduced, and we only hope it will not be too late.

Chae Sang-wook, CEO of Forcommas

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