Fear of Unsold Units in Station Areas... Focus on Contract Rate Over Competition Rate

Photo by Asia Economy

As a flood of apartment pre-sale units is expected within the year, the threshold for winning lottery-based subscriptions has lowered due to reforms in subscription-related systems, prompting prospective buyers to carefully distinguish the good from the bad. Given the ongoing overall weakness in the real estate market, experts suggest focusing more on contract rates rather than subscription competition rates.

According to the Housing and Urban Guarantee Corporation (HUG) on the 16th, the average initial pre-sale rate for private apartments in Seoul during the third quarter (July to September) was 92.7%, down 7.3 percentage points from the previous quarter (100%). This is the lowest since the second quarter of 2019 (91.3%). The atmosphere has completely changed compared to one or two years ago when “sold out” was taken for granted. The initial pre-sale rate refers to the ratio of contracted households to the total number of pre-sale units in projects where the elapsed period after the start of pre-sale is more than 3 months but less than or equal to 6 months.

In fact, even branded large complexes and areas near subway stations in Seoul are experiencing the fear of unsold units. ‘Hanwha Forena Mia’ in Mia-dong, Gangbuk-gu, Seoul recently announced its 5th non-priority subscription due to failure to clear unsold units. ‘Sillim Sky Apartment’ in Sillim-dong, Gwanak-gu also conducted 14 rounds of non-priority subscriptions. Among the large complexes near double subway stations that have recently appeared in Seoul, ‘Riversen SK View Lotte Castle’ in Junghwa-dong, Jungnang-gu recorded an average competition rate of 6.22 to 1 in the first-priority subscription for the local area held the day before. Although it avoided undersubscription, considering that Hanwha Forena Mia recorded a competition rate of 10.7 to 1 in the first priority, the possibility of unsold units cannot be ruled out.

This is because the difficulty of financing, such as interim payment loans, has increased due to interest rate hikes, and the outlook for the real estate market after pre-sale is uncertain. Buyers have endured paying huge interest until move-in, but at the move-in time 2 to 3 years later, prices may fall below the pre-sale price. A representative from a pre-sale agency said, “It is past the time to judge success by subscription competition rates,” adding, “The actual continuation to contracts will be the indicator of success.”

By the end of the year, large complexes with more than 1,000 units will be supplied nationwide. According to Real Estate Info, 53,672 units are scheduled in 29 locations nationwide. Among these, 30,175 units are general pre-sale units. The number including non-apartment units such as officetels is even higher. According to Real Estate R114’s tally, just this week, pre-sales are underway for 9,567 units (6,754 general pre-sale units) in 15 complexes nationwide. Yoon Ji-hae, senior researcher at Real Estate R114, said, “Complexes that had postponed pre-sales will push for pre-sales within the year after the lifting of regulation zones.”

Meanwhile, on the 10th, the government lifted real estate regulation zones nationwide except for four areas: Seoul, Gwacheon, Seongnam (Bundang and Sujeong), Hanam, and Gwangmyeong, at the 3rd Real Estate Relations Ministers’ Meeting. This has raised expectations that the pre-sale market will regain vitality. When lifted from the adjusted target areas, the housing loan-to-value ratio (LTV) regulation of 50% is relaxed up to 70%, and multi-homeowners are allowed housing loans, significantly easing regulations related to housing transactions. Also, subscription regulations such as the 10-year re-subscription ban, the point system ratio for private housing, and restrictions on pre-sale rights transfers are lifted, and tax measures such as capital gains tax and comprehensive real estate tax surcharges on multi-homeowners are also eased.

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