Number of Unsold Post-Construction Homes Swells

An apartment complex was constructed a year ago in Suseong-gu, which had been considered Daegu’s wealthy district. But few residents have moved into the apartment as many lots have not been sold. Until recently, an apartment resident had worked as the head of the apartment complex control office. He decided to lead the control office by himself since a series of problems had appeared due to the large number of unoccupied homes.

“Tens of millions of won of electrical and water fees are overdue since this apartment complex is not full of residents who can share the burden,” he said. “Relevant authorities even informed us that they would not supply electricity and water any longer. It’s helpless.”

Constructors consider apartments unsold even if after construction, the homes are not sold. They call this a ‘malignant case’ of unsold apartments. Smaller cities are flooded with these types of unsold homes. One apartment contractor has yet to sell any single apartment while another one has given up selling apartments and is trying to lease them on a deposit basis.

The Ministry of Land, Transport and Maritime Affairs said Friday that the number of unsold apartments, post-construction, reached 19,948 units as of late February, surging around 50 percent from a year ago. The ministry explained that 18,770 units out of the 19,948 were located in regional cities.

The president of an agency selling apartments on behalf of constructors said, “Some constructors do not release the number of unsold apartments since they worry low demand for apartments might dampen consumer confidence. Given that, the actual number of unsold apartments after construction is expected to be 1.5 times the government’s estimate.”

○ Unsold Apartments

On Thursday night, no lights were found in an apartment complex consisting of 92 apartment units in southern Busan. Even though the construction firm finished work last year, it has yet to sell any single apartment unit. The apartment complex is even referred to as the “apartment complex where ghosts reside.”

There’s no one in the apartment’s shopping arcade. The construction firm sells the apartment for 7 million won per 3.3 square meters, similar to the sales price of other apartments in the vicinity. The apartment complex is not far from public transportation and consists of apartments of 110 square meters, which has traditionally attracted many home buyers. However, the construction company has had no choice but to lower the price and put the apartments on sale again.

Another apartment complex, which completed construction last year, is not much better off. Only around 20 percent out of the 700 apartment units were sold. A resident of the apartment complex complained, “It’s really hard to find another resident within the complex.”

Another apartment complex in Busan even lowered prices by 2 million won per 3.3 square meters, only to be in vain. An official with the construction firm said, “We have no explanation. We’re in a crisis.”

According to the Busan local government, as of late April, the number of unsold apartments reached 13,325 units with 3,145 of them unsold even after the completion of construction.

A source from a construction firm said, “The biggest reason behind the rise in the number of unsold apartments is oversupply. Currently, 12,000 units out of all apartments under construction have yet to find an owner. That means the number of unsold apartments after the completion of construction will double by the end of this year.”

○ Unsold Apartments: 2-3 Times Larger than Government Estimates

There are several apartment complexes that were completed a year ago in Shinchang, a newly emerging residential area in northern Gwangju. However, less than half of the apartments were lit up at 10 p.m. on Thursday.

Newly built apartment complexes in Cheonan, South Chungcheong Province were not much different. There were many placards, saying, “We Welcome Inquiries From Potential Apartment Buyers.”

In a taxi on the way to the newly built city of Asan, the driver quibbled, “Why do construction companies build apartments when there are no buyers? I have no idea who will fill up the newly built cities.”

Moon Mi-yeong of the real estate agency ‘Jin’ in Asan explained, “Apartment complexes that have already finished construction but failed to find enough potential buyers to fill vacant apartment units are in a better condition than apartment complexes currently being planned and built. These complexes face far bigger challenges finding potential buyers.”

Local real estate agencies argue that they cannot trust the government’s statistical data.

The ministry explained that in Gwangju and Daegu, 1,078 and 974 apartments, respectively, were unsold after the completion of construction as of late February. However, local real estate agencies say that the actual number of unsold apartments after the completion of construction would be 2-3 times larger than government estimates.

A source from a construction company said, “A considerable number of unsold apartment units were hidden since developers pay construction expenses with unsold apartments. In an effort to prevent bad rumors from spreading, constructors even inflated the number of apartments sold when reporting to the local government.”

○ Leasing Apartments Instead of Buying

Several placards advertise to home buyers who plan to decorate their homes belonging to an apartment complex consisting of more than 3,000 units in Daegu. However, the apartment complex lacks new residents. Real estate agencies near the apartment complex explain that more than 80 percent of the units have not been sold.

The construction firm has given up selling the homes but tries to lease them. Two more apartment construction firms made a similar decision in just Daegu alone.

Lee Jin-wu, regional director covering Daegu and North Gyeongsang Province for online real estate information provider Real Estate 114, said, “Consumers do not want to buy homes.” That means there are only a few consumers who want to buy a new or established apartment.

For this reason, deposit money for the lease of homes almost reaches 90 percent of the amount needed to purchase homes in some regions.

At an apartment complex in Daegu, a 90 square meter unit sells for 110 million won. Even relatively cheaper apartment units cannot find a buyer. However, consumers are willing to rent an apartment for 95 million won but they have difficulties finding these apartments.

Local real estate agencies point out that the biggest reason behind ballooning unsold apartments after the completion of construction is the imbalance between supply and demand.

Real Estate 114 explains that 11,200 units or 69 percent of unsold apartments out of 16,232 units in Daegu area have exclusive areas of 85 square meters or over.

Some analysts argue that construction firms, encouraged by surging demand for newly built apartments in 2004 and 2005, are in a fix since they have provided a greater number of larger apartments.

○ Rapidly Increasing Unsold Apartments

40-year-old Kim, a Daegu resident, has recently lost his home. The price of the apartment he had planned to buy fell over 100 million won from 525 million won. He found that the price of his old home had also decreased 100 million won in the year since he put the house up for sale. “I’ve sold my home, where I’ve lived for several years, and cancelled the contract to buy another,” he said.

Kim said, “I will not buy a house for the time being. I don’t think unsold apartments will find owners.”

As demand for newly built apartments cools, 109,704 apartment units, now under construction, are expected to fail to find buyers after their completion.

A source for real estate information said, “Everybody is keeping the matter a secret. But, it will deal a blow to the nation’s economy, if apartments are not sold even after construction is done.”