[Edaily Reporter KIM HYUNG-HWAN ] Attention is focusing on the purchase method following the decision—made as part of the August 13 real estate measures—that the Korea Land and Housing Corporation (LH) will prioritize purchasing any remaining units from private housing developments in regulated areas of the Seoul metropolitan area, known as “leftovers,” and supply them as public rental housing. With high pre-sale prices continuing, particularly in the Seoul area, some argue that if LH purchases these homes at the original pre-sale price, the “LH sucker theory” could be reignited; conversely, if LH purchases them at appraised values, concerns about infringement on property rights are likely to be raised.

According to the “Plan for the Rapid Supply of Housing to Stabilize the Jeonse, Wonse, and Sales Markets” announced by the Ministry of Land, Infrastructure and Transport on the 14th, if unsold units from private housing projects arise in regulated areas of the Seoul metropolitan area, LH and other entities will purchase them first and supply them as standard public rental housing. The aim is to prevent issues such as excessive capital gains and to provide high-quality rental housing in prime locations for those without homes. To this end, the government will proceed with amending the Enforcement Decree of the Special Act on Public Housing in September.

This has drawn attention to the method of purchasing these “leftovers.” “Scrap” units refer to units that re-enter the market through non-priority applications—such as when private sales fail to meet subscription targets, when winners forgo their units, or when units are obtained through illegal means. From June of last year to May of this year, the number of remaining units (with exclusive use area of 85 square meters or less) in regulated areas of the Seoul Metropolitan Area totaled approximately 1,600 households.

The problem is that these “leftovers” are on the rise due to a combination of high sales prices and loan restrictions. “Raemian Ellavine” in Banghwa-dong, Gangseo-gu, Seoul, which held a subscription in April, offered 272 units for general sale, but 56 of them (20.6%) were abandoned. The sales price for an 84-square-meter unit at Raemian Ellavine reached a maximum of 1.848 billion won, the highest ever recorded for a new housing development in Gangseo-gu. Similarly, “The Sharp Bundang Centro” in Seongnam, Gyeonggi Province, set a sales price of up to 2.18 billion won for an 84-square-meter unit; 50 out of 84 units were abandoned, leading to a non-priority subscription round. The combination of these high sales prices and loan restrictions has caused a large number of “leftovers” to flood the market.

Despite these high prices, if the Korea Land and Housing Corporation (LH) were to purchase these units, the “LH sucker theory” could resurface. During a Ministry of Land, Infrastructure, and Transport briefing last December, President Lee Jae-myung pointed out, “There are rumors that homes built for 100 million won are being sold as rental housing for 120 million won,” adding, “There are widespread claims that LH is being used as a ‘sucker’ to make easy money.” This line of reasoning could also be raised during the process of LH purchasing the remaining units from this private housing project.

However, a plan for LH to purchase these units at a lower price—such as the appraised value—rather than the original sale price is also open to controversy. According to the current Enforcement Decree of the Special Act on Public Housing, terms of purchase—including the owner and purchase price—must be negotiated. From the developer’s perspective, transferring the housing units to LH at a price lower than the original sale price could even spark a “breach of fiduciary duty controversy,” as it would be seen as causing financial loss to the company or housing cooperative. There have been cases where courts ruled that disposing of company assets at a price significantly lower than their objective value constituted a breach of fiduciary duty.

Shim Hyung-seok, Senior Specialist at the law firm Jo-yul, pointed out, “The reason ‘snatch-up’ is occurring in the Seoul metropolitan area right now is a result of prices not aligning due to high presale prices.” He added, “From the housing association’s perspective, they will be reluctant to sell below the presale price, and the only way for the government to forcibly acquire private property at a low price is through legislative amendment. Even that will not be easy given the various controversies.”

The Ministry of Land, Infrastructure and Transport plans to amend the Enforcement Decree of the Special Act on Public Housing this coming September and announce the specific details. A ministry official explained, “We are pursuing this policy based on the judgment that it is in the public interest for the government to own and supply highly sought-after housing, such as private housing units in the Seoul metropolitan area,” adding, “So far, only the general direction has been outlined, and the detailed plans need to be further refined.”