[비즈한국] A major construction company, Company A, placed a provisional seizure on five apartment units near a subway station in Suji-gu, Yongin, Gyeonggi Province, on the 3rd. These apartments were completed in January 2021 after a real estate trust company selected Company A as the contractor. The seized units are large-sized apartments that remained unsold since their initial offering in May 2018. Company A filed for the seizure, demanding approximately 8.5 billion won in unpaid construction costs following the project's completion.
Due to the stagnation of the housing market, there is a growing number of new apartment construction sites in the metropolitan area that have failed to complete sales even after construction (completion). As the backlog of unsold homes persists, instances of construction firms failing to recover construction payments on time are appearing. With the significant increase in "post-completion unsold" units, often referred to as malicious inventory, the financial risk has become a reality for construction companies that rely on sales proceeds to recoup construction costs.
Unsold housing in South Korea is on an upward trend. According to the Ministry of Land, Infrastructure and Transport's report on the status of unsold housing, there were 69,069 unsold units nationwide as of October this year, an increase of 3,233 units (5%) compared to October of last year. This is the highest level in 13 years since October 2012, when unsold housing reached 72,739 units. As of October this year, unsold housing units in the metropolitan area increased by 3,603 (26%) to 17,551, while those in non-metropolitan areas decreased by 370 (1%) to 51,518.
The situation regarding post-completion unsold units, known as malicious inventory, is even more severe. As of October this year, there were 28,080 post-completion unsold units, an increase of 9,773 (53%) compared to October last year. This is the highest level in 14 years since October 2011, when the number of post-completion unsold units reached 32,963. In October this year, post-completion unsold units in the metropolitan area increased by 504 (13%) to 4,347, while those in non-metropolitan areas rose by 9,269 (64%) to 23,733.
Unsold housing risks leading to liquidity crises for construction firms, as these companies typically recover their construction costs through sales proceeds. In fact, in the first half of this year, the total amount of outstanding construction receivables for the top 10 construction firms by capability rose by approximately 24% compared to the first half of last year, reaching 21.4535 trillion won. Outstanding construction receivables refer to funds that have not been received despite billing the client after completing construction work.
The outlook for the pre-sale market is also bleak. A survey of housing businesses conducted by the Korea Housing Institute shows that the apartment sales prospect index for last month was 72.1, a 19.4-point drop from the previous month. In particular, the sales prospect index for the metropolitan area plunged by 26.9 points to 73.3. An index above 100 means that more businesses have a positive outlook on pre-sales, while below 100 indicates that more businesses view it negatively.
The Korea Housing Institute analyzed, "As discussions of potential tax system reforms, such as holding taxes, are added to ultra-strong regulations, buyer sentiment for apartments across the metropolitan area, including Seoul, is shrinking," adding, "A decline in buying interest and a short-term market contraction will have a negative impact on the pre-sale market outlook for the time being."