Government to buy up unsold homes

By Kim Tong-hyung

The government will spend 1.5 trillion won (about $1.28 billion) to reduce the country’s massive inventory of unsold homes in the latest desperate attempt to save the faltering property market.

Policymakers, still dismissing talk of a bubble, claim that subsidizing builders in this way is inevitable to keep house prices stable and preventing a domino of bankruptcies in the construction industry that would otherwise toss the real-estate market further into a freefall.

However, critics wonder whether the government’s Herculean effort, not to mention spending enormous public wealth, will just delay the inevitable.

Most of the money slated for purchasing unsold new homes will come from the coffers of state-run entities such as the Korea Housing Guarantee (KHGC) and Korea Land and Housing Corporation (LH).

Unsold homes in provincial areas will be bought first, as the regional housing markets have deteriorated more severely over the years than those in Seoul and the metropolitan area, according to the Ministry of Land, Transport and Maritime Affairs. At the end of July, Korea had more than 106,000 unsold new homes, including both finished and presale units.

To spur transactions, the government last month also eased the debt-to-income ratio (DTI) rule, which restricts homebuyers’ borrowing in proportion to their annual income, despite the fact that the country already has more than 700 trillion won ($597 billion) in household debt.

The latest government measures succeed a similar plan announced in April that slated 3 trillion won to be spent purchasing 20,000 unsold homes through KHCG on the condition of reselling them to the builders or house buyers after a certain period.

Although the previous plan was only for purchasing completed homes, the newly expanded budget will also cover unfinished houses that are planned to be built by the end of the year.

``The target is to push down the inventory of unsold homes below the 100,000 level, as it was prior to late 2007,’’ said a Land Ministry official.

The KHCG will spend 500 billion won to purchase the unsold homes for resale in the future, with the maximum payment to a single builder set at 200 billion won. This means that builders who have already sold some of their unsold homes to the state can apply for the government to buy more within the remainder of their 200 billion won allowance. LH is also offering stronger financial support by facilitating about 1 trillion won in real estate investment funds (REITs).

After peaking around 2006 and 2007, the country’s housing market has slowed considerably since 2008. Critics argue that the measures to reduce the inventory of unsold homes will have a marginal effect, as it remains uncertain whether the market will recover enough to allow the government to resell the homes to builders in the near future. Some observers believe that the government statistics on unsold homes are generous, and that the real number likely reaches over 200,000.