"Preventing the Supply Cliff" Ministry of Land, Infrastructure and Transport Plans 120,000 Purchase Rental Housing Units... Tax Support for Construction Companies

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To secure a total of 120,000 purchased rental housing units by next year, the government will expand the acquisition tax reduction rate for land and housing by construction companies to 15%. The government's goal is to increase the profitability of housing construction projects to boost the supply of housing by construction companies, and to stabilize the housing market by having Korea Land and Housing Corporation (LH) and others utilize these as purchased rental housing.

On the 17th, the Ministry of Land, Infrastructure and Transport announced the "Second Half Rapid Supply Plan for Purchased Rental Housing" containing these details. The ministry stated that it will supply 120,000 purchased rental housing units, which are cheaper than market rent, to non-homeowners over two years. The 120,000 units consist of 75,000 newly built units, 20,000 existing units, and 25,000 units under the Dundeun Jeonse program by the Housing and Urban Guarantee Corporation (HUG).

Kim Dogon, Director of the Housing Welfare Support Division at the Ministry of Land, Infrastructure and Transport, emphasized, "It is not easy to supply 40,000 purchased rental housing units per year, but this year and next year, we plan to supply 60,000 units each." He added, "Additional incentives are needed to achieve the goal of supplying 40,000 newly built purchased rental housing units in the second half of this year."

New housing supply must proceed smoothly for new purchases to be possible. To this end, the government will provide tax benefits to construction companies. First, the acquisition tax reduction rate for land and housing acquisitions by construction companies will be increased from 10% to 15%. Director Kim explained, "Improving the business feasibility for construction companies makes it easier to build purchased rental housing, so this incentive is necessary."

Additionally, the tax reduction benefit that excludes the 10% additional tax imposed when corporations transfer land to private construction companies will be extended until December 2027.

The purchase price supported by the Ministry of Land, Infrastructure and Transport will also be raised. Currently, up to 66% of the actual purchase price is recognized, but considering the rise in construction costs, there have been calls to increase the price. Director Kim said, "For newly built purchased rental housing, more support is needed for LH to secure the volume," and added, "The extent of additional support is currently under discussion with the Ministry of Economy and Finance."

Measures for construction companies' financing are also being introduced. The HUG project financing (PF) guarantee, currently only applied to LH new purchases, will be expanded to local corporations and local governments. This will lower the interest rates on funds that construction companies need to raise when building housing according to purchase conditions.

Director Kim stated, "Purchased rental housing is the fastest supply method and is a necessary measure when housing supply is insufficient like now," and explained, "Supply generally occurs within about one and a half years from the time a pre-agreement contract is signed allowing LH to purchase after private developers complete construction, and existing units can be supplied immediately."

Park Won-gap, Senior Real Estate Specialist at KB Kookmin Bank, analyzed the Ministry of Land, Infrastructure and Transport's recent measures, saying, "As the apartment market improves in Seoul and the metropolitan area, sellers with properties in the metropolitan area or near subway stations will be reluctant to sell, and listings may come out in non-apartment or non-subway areas where transactions are not happening." He added, "Nevertheless, it is meaningful in terms of supplying housing at a lower price."

He further noted, "There is an issue with unsold units in provincial areas, and it might be better for construction companies to sell at a discount on the market rather than to LH."

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