Government’s Real Estate Plan Sends Housing Market into Tailspin

Ever since the August 31 Comprehensive Real Estate Plan was released, the housing market has been spiraling downward.

It is clear that the apartment market is in a cooling-off period and that construction companies have slowed their pace of operations, contributing to the decrease in the provision of new housing.

The 10th Seoul housing distribution project next month will have only two construction companies participating, the smallest number of the year.

Several indicators for the construction market look gloomy as well, thanks to the economy surrounding the construction market and the lowest amount of construction contracts in September since January.

Unsold Apartments Increase—

Except for some local cities in non-speculation areas, the market in Seoul, Gyeonggi Province, and large local cities is full of unsold apartments.

In the ninth Seoul simultaneous distribution earlier this month, a large number of apartments of every size remained unsold. On October 5, the number of first priority applications submitted that day was only 106, though a total of 425 houses were provided. The competition rate was only 0.25:1, the lowest rate this year. Not only that, there were no additional applicant households, resulting in a massive amount of unsold apartments.

Major construction company apartments distributed last month in metropolitan cities, including Dalseo-gu of Daegu and Nam-gu of Ulsan, still recorded only a 50 percent contract rate.

These sluggish conditions are due to the heavier taxation imposed on households with more than two houses, which froze consumer spending on housing.

“Actually, many people gave up their contracts after the government strengthened the regulations for house-funding loans from last month, because they could not borrow enough money to buy a house,” said a person from the construction industry.”

Construction Companies Put off Housing Business—

In this regard, construction companies have put off their sales or even thrown off their contracts.

“Now that the housing economy shows no indications for a boom, we have focused on commercial housing, such as apartment-type plants or overseas businesses,” said Lee Kwang-jin, the general manager of construction sales for SsangYong Engineering and Construction.

Hyundai Engineering and Construction and Boram Construction will participate in the 10th Seoul simultaneous distribution on November 1, providing 347 households for sale.

This is the lowest number of participants and apartments since the second simultaneous distribution in March.

Compared to the 10th simultaneous distribution the previous year, the amount is down by one third. At that time, 14 construction companies participated, and 1,177 houses were put up for sale.

Hyundai and Boram are also known to be seriously reconsidering whether to actually participate in the 10th simultaneous distribution, even though they already submitted applications for sales approval to their district office.

Also, construction companies, such as GS, Kolon, and Byucksan, that are preparing to do housing business in the metropolitan area, such as Yongin-si of Gyeonggi Province, have decided to put off their sales to the middle of next year. Next month`s apartment sales are estimated to be half of October`s.

Construction Economy Outlook Gloomy—

The Construction Bid Source Interactive (CBIS) of construction companies recorded 51.3 in September, the lowest since January this year (47.4). In particular, major construction companies’ CBSI went below 100 in August with 83.3. It was the first time that the index hit below the 100 level. During February to July, the figure stayed above 100, but began to drop to 41.7 on September, according to the Construction and Economy Research Institute of Korea.

When the CBSI is below 100, it means that the suffering construction companies outnumbered those that viewed the construction economy was getting better.

The amount of houses provided by the Korea National Housing Corporation also showed a gradual decrease, with its index recording 62.2 in September, down from 80.1 on August. The index for the amount of housing construction contracts recorded 61.6. The amount provided by major construction companies dropped 58.3, more than 50 percent down from the previous month.

“The construction economy will be more suffered next year, resulting in a minus growth. The future of construction economy depends on whether the government’s housing projects involving public housing land in new cities will succeed or not,” said Kim Sun-deok, the head of the Construction Industry Strategy Research.

imsoo@donga.com