Unranked apartment lottery-contracts resurge as apartment prices are high

Recently, the real estate market has seen a resurgence of “apartment lottery-contracts.” Some apartment complexes have attracted more than 1 million people for a single-digit recruitment. Despite the controversy over high prices, buyers are flocking to unranked apartment contracts, or so-called "pick-up," in key areas such as Gangnam, Seoul, where safety margins are guaranteed.

According to the website of Applyhome on February 26, three houses, one for each of 34㎡, 59㎡, and 132㎡, conducted a unranked contract for the exclusive units of The H Firstier I'Park Apartment in Gaepo-dong, Gangnam-gu, Seoul. It is reported that the original contracts were canceled for reasons such as non-payment of the balance. The competition ratio was 172,471 to 1 for 34㎡, 503,374 to 1 for 59㎡, and 337,608 to 1 for 132㎡. A total of 1,033,456 people applied for the three units.

The sales price for each housing type is 656.81 million for 34㎡, 1.290 billion for 59㎡, and 2.093 billion for 132㎡. As the sales price was set as it was at the time of original sale in July 2020, there were high expectations in the market that it would be able to achieve high market profits

A sales contract was signed last December for a 59㎡ unit on the 26th floor for 2.2 billion, and a 132㎡ unit on the 24th floor for 4.9 billion December last year. Even taking into account that the units for unranked contracts are on the lower floors, it is calculated that up to 2 billion in market profits can be generated.

Other metropolitan complexes that have conducted unranked contracts before The H Firstier I'Park Apartment have also recorded competition rates of one to thousands. The previous record was set in June last year when 829,804 people applied for one unit of Heukseok River Park Xi Apartment in Dongjak-gu, Seoul, in the first round of unranked contracts. In the recent unranked contracts, DMC Han River Zider Heritage Apartment attracted 210,000 applicants for two units and Sanseong Station Xipurgio Apartment attracted 69,596 applicants for one unit.

The high competition rate for unranked contracts is due to the lower threshold than regular contracts. Any resident of Korea aged 19 or older can apply without restrictions on the number of apartment contract bankbooks and houses owned. Actual residence obligations and resale restrictions are not applied either.

As construction costs have been rising since the coronavirus pandemic and the Ukraine-Russia war, and sales prices have been rising accordingly, unranked contracts that were sold years ago are highly competitive in price.

"Although the apartment contract market is polarized, unranked contract offerings that are priced below the neighboring apartment prices often have high competition rates even outside of Seoul," said Park Ji-min, CEO of the Wolong Apartment Contract Research Institute.

However, there are as many things to be cautious about as there are benefits. Unranked contract offerings have a short time frame between the announcement of the winner, the signing of the contract, and the settlement of the balance, so applicants need to plan their financing thoroughly. In particular, the construction of The H Firstier I'Park Apartment was not officially approved for completion by the Gangnam District Office because the sewer culvert work in the complex was not completed. In this case, it is not possible to register the preservation of ownership, which limits mortgage loans and ownership transfers.

Since there is no residency obligation, you can raise funds by renting a lease. If the lease is not available, you can resell the right to sell it, but if you sell it within a year, the capital gains tax rate of 77 percent is applied, which puts a high tax burden. Since Gangnam-gu, Seoul, belongs to an overheated speculation zone, even if it is an unranked contract, if you win and do not sign it, the 10-year limit on re-winning will be applied.

※This article has undergone review by a professional translator after being translated by an AI translation tool.