New Apartment Distribution System to be Implemented Next Year

A new apartment distribution system where apartment complexes are first built and then distributed to subscribers is likely to be introduced in the housing market early next year.

If the new distribution system is set in place, the current housing subscription system, with the old order of distribution then construction, will not be in effect any longer.

Korea Research Institute for Human Settlements (KRIHS) released this new plan at its public hearing, held at the request of the Ministry of Construction and Transportation on November 28.

The introduction of the new distribution system was ordered by President Roh, and the Ministry of Construction and Transportation plans to finalize the related policy by next month after collecting various opinions presented at the hearing. According to its report, KRIHS suggested that the new distribution system should be gradually implemented. It also should apply to apartments provided by the Public Housing Corporation and local self-governing institutes, resident sites distributed by the government or private houses funded by the National Housing Funds. That is, the public sector that accounts for some 40 percent of the entire housing supply market should spearhead the use of the new system. Some freedom would be given to the private sector, which could successfully progress into the new system. The report proposes that public housing should be allowed a trial early next year, to then segue into full implementation of the new system in early 2006, after resolving potential problems.

For private houses funded by public money, the new system should be applied to mid-size apartments (from 18 pyong to less than 25.7 pyong) early next year, as the first stage of the implementation of the new system.

The second stage comes in late 2007 where the new system is applied to apartments constructed on public resident sites in the following two ways: the new distribution system is implemented only after certain amount of construction work is done (30 to 100 percent) or, the traditional and the new system could coexist, but distribution prices will be regulated for the former while there would be no regulations in distribution prices for the latter.

This gradual implementation plan is intended to reduce shockwaves to the housing market. If the new distribution system comes in the market too suddenly, it could decrease apartment supply by 15 to 30 percent in the short term while raising their distribution prices by some 11 percent, and the existing house prices could well rise by 2.0 to 4.1 percent due to the reduced house supplies.

KRIHS also pointed out that the following supplementary measures should be taken for the successful launching of the new system: expansion of long-term house loans with the help of the house financial corporation as a way to reduce financial burdens of the consumers. Also, establishing new laws related with project financing could lessen the burden of business funds for housing distribution companies and introduce a new type of house subscription system for home buyers.

Jae-Seong Hwang jsonhng@donga.com