[Opinion] Unsold Apartment Crisis

As the number of unsold apartments increases amid the economic slowdown, construction firms are using every tactic they can to sell more units. For example, construction firm A showed video footage featuring a famous figure talking about feng-shui to recent visitors at its model house in Asan, South Chungcheong Province. The expert, well known for house selections for the wealthy, promoted apartment contracts with the firm saying, “If you move into this complex, you can send your children to prestigious colleges.” Another firm B held a variety of events such as an English class and caricature drawing, and even provided a valet parking service for visitors. Construction firm C, in northwestern Gyeonggi Province, faced with grim sales performance spread unfounded rumors that a massive development project was on the way.

As of the end of March this year, the number of unsold new apartments across the country rose to 131,757 units, about 30 percent higher than the level of the Asian financial crisis in the late 1990s. Experts believe that if the figures not reported by the construction firms are included, the total number would jump to 250,000, double. Some say that the capital strained by the unsold apartments reaches a whooping 60 trillion won. Construction firms are reluctant to disclose such a reality under the belief that making public the information brings more pressure for capital collection from banks and deteriorates their corporate images.

Facing a harsh financial environment, some even hand over units with 30 percent price cuts to property fund firms on a massive scale, but their financial hardship isn’t likely to come to an end soon. During the fist half of this year, the number of bankrupted firms stood at 180, a 44.9 percent increase from 125 in the same period last year. This means that during that period one domestic company went out of business on a daily basis. Rumors are running wild that a considerable number of domestic firms, except for a few large conglomerates, are teetering on the verge of collapse.

Although the government came up with countermeasures focusing on reducing acquisition and registration taxes last month, the scheme turned out to be little effective with a host of construction firms reporting gloomy sales performances. The most responsible for the current crisis is construction companies themselves, which flooded the market with new apartments before the previous government’s apartment price restriction came into effect. Now they find themselves in hot water: they are unable to reduce unit sales prices due to possible resistance from existing contractors, but no buyers can be found if the original prices remain. In a parliamentary address Friday, President Lee expressed worries over severe transaction reduction in the real estate market and said measures focusing on price stabilization and transaction activation must be promoted. The key to this issue, however, lies in the means chosen.

Editorial Editor Park Won-jae (parkwj@donga.com)