Government mulls allowing resale of public housing residential properties

[Photo by Yonhap]

The South Korean government is considering allowing the resale of apartments and other residential properties within public housing estates in a bid to boost housing supply. The move comes as the Korea Land & Housing Corporation (LH) records a high rate of overdue payments for public housing fees and housing supply fails to keep up with demand.

According to sources from the Ministry of Land, Infrastructure and Transport and the construction industry on Tuesday, the government decided to revise the Enforcement Decree of the Land Development Promotion Act to allow the resale of residential properties, such as apartments, in public housing areas and is reviewing the inclusion of related measures in the real estate supply plan to be announced this month.

The Enforcement Decree was amended in 2020 by the former Moon Jae-in administration to prohibit the resale of land designated for residential use in public housing areas after construction companies acquired it through lotteries, excepting certain circumstances such as bankruptcy. The prohibition aimed to cool an overheated real estate market and address concerns that group biddings by construction companies using company affiliates and the resale of land between affiliates were disrupting the housing supply order.

But construction companies have recently faced difficulties in raising funds through project financing, leading to a significant increase in unsold public housing. The companies have been unable to make payments as their lack of funds hinders the development of land plots, leading to a sharp increase in overdue payments.

According to LH, as of the end of June, there were 25 businesses and 46 sites with overdue payments for residential properties in public housing areas, with the overdue amount totaling 1.13 trillion won ($847.86 million). It is the first time since 2013 that overdue payments for residential properties exceeded 1 trillion won.

The land ministry aims to relieve the financial burden on the private sector and expand housing supply by allowing the resale of land while also securing land sale proceeds for LH to carry out public housing projects smoothly. However, to prevent indiscriminate resales, the ministry is considering setting the resale price below the market price and imposing restrictions, such as allowing resale only after a certain period after the contract is signed. Before the 2020 law amendment, the resale of land was possible after a two-year period (or full payment of the balance) following the contract.

The government is also discussing ways to increase construction project financing and guarantee support to promote private housing construction. The government has supported the construction industry since 2022 through measures including extending the maturity of bridge loans and loans for the projects’ early stages to prevent PF defaults. But there are still many cases where the conversion of PFs was suspended even after project permits were granted.