[Opinion] Apartment Fire Sale

The number of houses held for sale after completion of construction is soaring as the real estate market has been slowing down due to the government’s various financial regulations and the “tax bomb.”

The Ministry of Construction and Transportation (MOCT) revealed that the number is 12,444 as of the end of May this year, the highest in the past five years since April 2001. The trend of houses being unsold which started in local regions even spread to the metropolitan area, with Gyeonggi Province having as many as 2,411 houses still available for sale. The number of unsold houses which have yet to go through the construction completion inspection amounts to 58,505, half of those during the financial crisis of 1997.

That is why construction companies which could no longer afford to have such financial burdens are said to be active in offering a discount. They put their apartments on sale at prices 10 to 20 percent lower than the sales price in secrecy. Or they are busy putting out ads for occupants with special conditions such as lending them money for interest-free intermediate payments. This is a new kind of a “mass selling market” that sells apartments with lowered prices en masse, which was only common during the financial crisis. Even “mass selling websites” to commission unsold apartment transactions among construction companies and investors emerged online.

The term, “mass selling,” or “Ddaengcheori” in Korean, is a slang originated from the apparels distribution procedure. It means selling off the apparels inventories at around 10 percent of normal prices, which have been accumulated from department stores and into discount stores and still not sold well, so that the holding or carrying costs of the inventories could no longer be wasted. These stores with eye-catching ads like “Blow-out sale”; “Going-out-of-business sale”; and “My boss went crazy” are favorite places for money-conscious housewives who can’t afford what is expensive.

The emergence of “the apartment mass selling” market clearly shows the severity of the real estate slowdown as it shows financial burdens of construction companies. If this continues, they would likely end up bankrupt. Such an accumulation of unsold houses dampens the already shrunken local economy. It is the local house market that was first hit by as series of government measures to curb the housing price of Gangnam area: heavy taxation, limits to loans, and regulations on reconstruction. Would the government still boast of its real estate policies as “precision bombs?”

Chung Seong-hee, Editorial Writer, shchung@donga.com