‘Equity Apartments’ to Appear in 2H08

Beginning the second half of this year, so-called ‘equity apartments’ which can be bought at half the market price, will appear. Owners of the apartments will own shares of the home, unlike half-priced apartment owners who either have only have a stake in the apartment building or are required to sell the apartment to government agencies after a designated period.

The presidential transition team announced yesterday that it would introduce a new system to sell ‘equity apartments’ through which ownership is separately sold to consumers and investors, in an effort to help people purchase their own homes.

Under the new system, consumers who plan to reside there can buy a 51% share of an apartment while institutional investors, including pension funds and funds, can purchase only the remaining shares.

Consumers of equity apartments in the metropolitan area cannot sell the apartments for seven to ten years once purchasing a newly built apartment.

On the other hand, institutional investors will be allowed to resell their shares at any time, so as to help them redeem their investment over the near term.

Also, since institutional investors are not allowed to have more than 49% of the apartment’s shares, residents of the equity apartments will remain the largest shareholders even when institutional investors sell their stake.

Choi Jae-deok, an expert in economics for the transition team, said, “A newly constructed apartment with 60 square meters (18 pyeong) of exclusive dwelling area in the metropolitan area costs around 200 million won. Under this new system, institutional investors would pay 98 million won and the end user would pay 102 million won.”

He added, “Residents of the apartments would be able to borrow 50 million won from the national housing fund. In short, this would allow the consumer to purchase a home for only 52 million won.”

The incoming government is scheduled to apply the new system to newly built apartments whose exclusive dwelling area is smaller than 85 square meters (25.7 pyeong) in public-designated residential areas within the Seoul metropolitan area. This should begin the second half of this year once relevant laws and regulations have been established or revised by June.

In an effort to lower the land price, the system will also allow private companies the right to participate in developing public-designated residential areas, which has been exclusively given to state-owned firms and local governments.

koh@donga.com