Unsold Apartments in Metropolitan Area Becoming Problem, Say Experts

Unsold Apartments in Metropolitan Area Becoming Problem, Say Experts. October. 09, 2007 03:24. koh@donga.com mint4a@donga.com.

According to the Korea Financial Telecommunications & Clearings Institute and Lotte Construction yesterday, only two people bought apartments out of 50 units of Lotte Castle Medici put up for sale in Seocho-dong, Seocho-gu, leaving 48 units of apartments unsold.

Lotte Construction is planning to put all the units up for sale starting today when the two who initially decided to buy the apartments did not sign the purchase contract.

The sale price of the apartments was around 26.5 million won per 3.3m² (1 pyeong), and the builder offered zero interest rate financing, and a balcony expansion for free, which led Lotte Construction to believe that many apartments would be sold, even though the apartments were pricey.

One official of a construction company said, “Usually, 30% of apartment units are sold even though their location is not great as long as they are in the Gangnam area. What happened to the Lotte apartments is shocking.”

In fact, many in the construction industry said that this is the first time zero sales have taken place since the financial crisis. Outside of Seoul, where things are even worse, other apartment complexes have been built with a zero occupancy rate.

KCC Switzen (367 units), which was put on the market recently, has a zero occupancy rate, while Shincheon Cheongaram (43 units) has had only one buyer.

This low occupancy rate is attributed to an excess supply of apartments and consumers waiting for more affordable apartments to be offered. This is the reason many more construction companies with low liquidity are expected to go under.

Kim Hui-seon, executive director of Real Estate 114, a real estate information company, said, “Large housing development areas or top notch apartments receive considerable buyer interest; however, those lacking competitiveness are seeing the very opposite.“

One official of the Construction and Research Institute of Korea said, “The introduction of a cap on sale prices is spreading expectations of a further cut in prices, leading consumers to wait and see until this actually happens. Sale prices may go down, but the scope of the fall is unknown.”

New System Makes Things Worse –

After the introduction of the Sales Point System, in which applicants are given points that determine their eligibility to purchase apartments, many who are ineligible have won the right to purchase an apartment before others, an obvious adverse effect of the system. It was originally designed for ordinary people who have not owned a home, but consumers have expressed discontent due to its complex procedures.

After analyzing those who have won purchasing rights, Hyundai Construction said yesterday that it found out that 66 people, or 11.1% of 567 people who applied to buy an apartment at the Nonhyeon Hill State apartment in the Nonhyeon district in Namdong-gu, Incheon were ineligible.

This is the first apartment complex subject to the new system, and out of the ineligible applicants, 48 did not understand the conditions attached to buying a home. Others miscalculated their application scores (8 people), had lacking qualifications (5), or violated the rule banning winning purchasing rights more than once (5).

Considering that new apartments that were completed in Osan and Yongin in May and August saw only 3-4% buyer ineligibility rates, a rate of more than 10% is more than expected now, the company said.

One official at Hyundai Construction said, “One homemaker who turned out to be ineligible cried at a model house, saying ‘I didn’t know the rules well’. It was frustrating for us too as we did not know any recourse.”

He added, “One out of 10 turns out to be ineligible, which forces us to hold extra application information sessions. This delays deposit payments for about a month, and this in turn is making us restructure our finances.”

In the new system, one’s application will be cancelled if he or she provides wrong information regardless of their intentions, and such action is subject to a ban on applying to purchase another apartment for up to 10 years.