By Yoon Ja-young
Too many new apartments are being supplied to the market this year, which could weigh on the construction industry as well as household debt in a few years, the country’s leading economic think tank warned Thursday. The Korea Development Institute (KDI) expects up to 30,000 new apartments to remain vacant by 2018 due to an absence of buyers.
“Around 490,000 new apartments will be sold this year, which is nearly double the annual average supply between 2000 and 2014. There is concern that the increasing supply will become a burden in the future,” said KDI researcher Song In-ho.
“The housing market is running hot and cold in terms of demand, but it takes a few years from sale to real supply. The new apartments sold this year can have a different meaning depending on how demand changes later.”
In Korea, construction companies take deposits for new apartments before they are completed. Subscribers pay for the apartment in installments until completion, which generally takes around two or three years. As construction companies are selling an unusually large number of new apartments this year, there has been concern that too many new apartments could be supplied in the market after 2017.
If some of these new apartments remain unsold after completion, the researcher warns that they will weigh heavily on construction companies. The number of such unsold new apartments has been decreasing since peaking at 50,000 in 2008 and 2009, but is likely to increase again unless demand for homes surges. Kang expects around 21,000 new apartments to remain vacant in 2018, and the figure could be as high as 30,000 if GDP falls by 1 percentage point in the next three years.
On top of burdening the cash flow of construction companies, they are likely to exacerbate household debt risks because many residents pay for apartments with loans.
He recommended strengthening loan restrictions and stressed that corporate restructuring in the construction sector should not be delayed.
Despite warnings by real estate experts, construction companies are increasing the supply of apartments. According to Real Estate 114, a real estate market information provider, construction companies are scheduled to sell a total of 36,872 new apartments in December. That figure is 88 percent higher than the average figure for December in the past three years.
Kim Eun-jin, chief analyst of Real Estate 114, said the situation will turn worse in some regions. “In some areas in provinces, we are already seeing housing prices turn downward from the peak,” she said. “Buying homes on a big loan is never recommended.”