Calls to Expand Post-Completion Unsold Unit Incentives to Non-Regulated Areas in the Seoul Metropolitan Area

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For the first time in 10 years, the number of unsold houses after completion has exceeded 20,000 units. The so-called "malignant unsold" inventory after completion has surged, raising concerns that it is visibly having a negative impact on the construction industry and the overall economy. The common consensus in the market is that if the unsold housing problem is not resolved, the contraction of the construction industry combined with financial market instability could lead to a vicious cycle.

Amid this, the government has recently attracted attention by reviewing and introducing "incentive" policies to resolve unsold housing, mainly in provincial areas. However, experts argue that "since the increase in unsold housing is also clear in the metropolitan area, the scope of application should be expanded to include not only provincial areas but also non-regulated areas in the metropolitan region." This is because if the construction and financial markets in the metropolitan area are shaken, the ripple effect could spread nationwide, causing a greater burden on the real economy overall.

An industry insider emphasized, "If unsold housing increases rapidly, the financial burden on construction companies and the risk to financial institutions will intensify, ultimately leading to a contraction in consumer sentiment and economic downturn," adding, "Benefits should also be given to non-regulated areas in the metropolitan region, excluding Gangnam 3 districts and Yongsan-gu, to minimize damage."

◆ Highest Number of Unsold Houses After Completion in 10 Years

According to the "December 2024 Housing Statistics" released by the Ministry of Land, Infrastructure and Transport, as of December last year, the number of unsold houses after completion totaled 21,480 units, a sharp increase of 15.2% (2,836 units) compared to the previous month. The number of so-called "malignant unsold" houses after completion exceeding 20,000 units is the highest in 10 years and 5 months since July 2014. In particular, it has increased for 17 consecutive months since August 2023, placing considerable burden on the industry and financial sector.

The most notable point in this statistic is the concentration of "malignant unsold" houses in provincial areas. About 60% of all unsold houses after completion are concentrated in Daegu and Gyeongbuk, with Daegu recording the highest at 2,674 units and Gyeongbuk at 2,237 units. Other areas include Jeonnam (2,450 units) and Busan (1,886 units). The metropolitan area is relatively holding up but recorded 4,251 units, an increase of 10% (409 units) compared to the previous month, showing a worrying upward trend. By region, Gyeonggi had 2,072 units, Incheon 1,546 units, and Seoul 633 units.

A real estate industry official said, "The issue of unsold houses after completion is not simply a problem of oversupply but a complex issue with wide-ranging ripple effects including the financial stability of construction companies and financial institutions, the soundness of the real estate market, and even regional economic revitalization," emphasizing, "It is time for the government and industry to prepare effective policies to resolve unsold housing and closely cooperate for the sustainable growth of the housing market."

◆ Political Circles Also Urge Solutions... Measures Focused on Provincial Areas

As the increase in malignant unsold housing accelerates, the government and political circles are rolling up their sleeves. First, for provincial areas, the policy excluding "unsold houses after completion" acquired since January last year from the calculation of the number of houses for acquisition, transfer, and comprehensive real estate tax is already in effect. Starting this year, if a single homeowner purchases an unsold house after completion in provincial areas, transfer tax and comprehensive real estate tax will be calculated under the "one household, one house" benefit, and if used as rental for more than two years, the original acquisition tax for housing construction businesses will be reduced by up to 50%.

Along with this, tax incentives to revive depopulated areas have been further strengthened. Provincial areas have fewer populations and a clear declining trend compared to the metropolitan area, so many places can benefit from these incentives. From this year, if a single homeowner newly purchases a house in a depopulated area, the "one household, one house" special case will be applied when levying property tax, transfer tax, and comprehensive real estate tax. Apartments under 85㎡ in exclusive area and acquisition price under 600 million KRW are eligible, and acquisition tax can be reduced by up to half if a non-homeowner or single homeowner buys a house with a publicly announced price under 400 million KRW in a depopulated area.

Some in the political circles have also suggested temporarily easing the Debt Service Ratio (DSR) for unsold houses after completion in provincial areas. Since DSR is a system that limits loan amounts by assessing how much of the loan principal and interest can be borne relative to income, easing it could make it easier to secure funds for home purchases.

However, some in the industry argue that "supporting only provincial areas is insufficient" and that active measures should be expanded and applied to the metropolitan area as well. However, incentives should focus on non-regulated areas in the metropolitan region rather than regulated areas like Gangnam and Yongsan, and especially since current incentives have limited practical effects, there are calls for bold benefits that can resolve the unsold housing problem at once. The industry demands demand stimulation measures such as significantly expanding transfer tax and acquisition tax reductions when purchasing houses.

Experts point out, "Although the volume of unsold houses after completion in the metropolitan area is not as severe as in provincial areas for now, if the upward trend accelerates, the impact will be much greater," adding, "Considering the influence of the metropolitan real estate market on the nationwide financial and construction economy, incentives should be prepared as a preventive measure." Above all, the metropolitan area is full of large-scale projects, and if unsold housing prolongs, both construction companies and financial institutions could face severe financial pressure, which is the consensus in the industry. Meanwhile, there are consistent criticisms that "if incentives are given only to provincial areas, certain areas within the metropolitan region will be unfairly discriminated against."

In fact, there is a case where the government’s transfer income tax reduction card, introduced on April 1, 2013, had a considerable effect on resolving unsold housing in the metropolitan area. At that time, the policy was that "from April 1 to December 31, 2013, if new houses, unsold houses, or houses owned by one household one house owners are acquired, the capital gains tax on gains arising within five years after acquisition will be 100% exempted."

There are also many opinions that incentives to quickly clear the supply, such as reducing acquisition tax for new buildings when unsold houses after completion are converted to rentals, are necessary. Some have consistently argued for the temporary reintroduction of special Bogeumjari loans when acquiring new houses.

An industry insider emphasized, "Supporting only provincial areas has clear limitations. If unsold housing in the metropolitan area explodes once, the ripple effect will spread to the nationwide construction and financial markets, accelerating contraction in consumer sentiment and economic slowdown. For sustainable development of the housing market, the government and private sector must closely cooperate to resolve supply-demand imbalances and introduce more progressive and effective tax and financial support measures."

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