Jusan Research Institute: "Unsold Houses Estimated Over 100,000... Corporate Restructuring Should Utilize REITs"

Joint Seminar Hosted by Jusan-yeon and Assemblyman Park Jeong-ha's Office

As the number of unsold housing units is estimated to exceed 100,000, which is more than the government's statistics, there is a claim that corporate restructuring REITs (CR REITs) should be utilized to resolve the backlog of unsold houses in provincial areas.

Deputy Research Fellow Choi Deok-cheol of the Korea Housing Institute is giving a presentation on "Measures to Revitalize Unsold Housing REITs for Housing Market Stabilization."
[Photo by Korea Housing Institute]

On the 5th, the Korea Housing Industry Research Institute announced at a seminar co-hosted with the office of Park Jeong-ha, a member of the People Power Party, that “corporate restructuring REITs, which were additionally implemented as an activation measure during the 2008 financial crisis, should be actively utilized to solve the unsold backlog.” Corporate restructuring REITs refer to raising funds from multiple investors to invest in real estate or real estate-related securities of companies undergoing restructuring and distributing the profits to investors.

The Korea Housing Industry Research Institute evaluated that the current housing market has been going through a correction phase after a short-term sharp decline lasting about a year since early last year. However, it expects that with gradual economic recovery and interest rate declines, popular areas in the metropolitan area and major provincial cities may show signs of recovery, but other regions with less demand pressure may experience a prolonged correction phase and long-term unsold housing.

In particular, the institute emphasized the need for drastic measures to resolve unsold housing in provincial areas. If the issue of long-term backlog of unsold houses in provincial regions is not addressed, there are concerns about insolvency in the construction industry and the secondary financial sector. Moreover, the institute estimates that the actual number of unsold houses far exceeds the government's announced figure of 70,000 units, surpassing 100,000 units. A representative from the institute explained, “During a housing market downturn, there tends to be a 30-50% underreporting of unsold units based on actual subscription and contract standards.”

They proposed the use of corporate restructuring REITs as an alternative. This is because, immediately after the 2008 financial crisis, nine corporate restructuring REITs purchased and managed 3,404 unsold housing units. At that time, construction companies holding unsold projects were facing losses of at least 30% before the implementation of corporate restructuring REITs, but they were able to reduce losses to around 7%. Investors earned returns of about 7%, and lending financial institutions recovered both principal and agreed interest. Additionally, tenants benefited from living at rents lower than the surrounding market, according to the institute’s explanation.

To this end, the Korea Housing Industry Research Institute stressed the urgent need to restore government support measures such as credit enhancement, tax, and financial support for corporate restructuring REITs, which were abolished during the housing market activation period. The institute argued that when housing prices fall by more than 30%, credit should be enhanced by committing to public purchase at the reduced price, and the abolished tax and financial support measures should be reinstated. They also called for supplementary measures to address issues such as holding taxes that were identified as shortcomings during past implementations.

Park Jeong-ha, the lawmaker who hosted the seminar, pointed out, “A major reason for the sharp decline in housing demand in the housing market is the prolonged high interest rates and difficulties in securing funds for housing construction.” She added, “Especially, construction companies building houses in non-metropolitan areas with relatively lower market prices tend to set higher sale prices to cover costs, which leads to a deepening long-term backlog of unsold houses in these regions.” Park further stated, “It is necessary to prepare practical measures such as simplifying public offering procedures, tax support, and special tax treatment by utilizing CR REITs, which were implemented as a measure to ease unsold housing during the 2008 financial crisis.”

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