Cancellations of public housing land contracts have risen at sites outside the Seoul metropolitan area, according to data from Korea Land & Housing Corporation (LH). Developers and builders are walking away from projects while forfeiting deposits worth tens of billions of won, a pattern analysts attribute to the risk of unsold homes.
An analysis of LH data on cancellations of corporate contracts for multi-unit housing land since 2021, obtained by the office of Rep. Kim Mi-ae of the People Power Party, a member of the National Assembly's Land, Infrastructure and Transport Committee, showed 56 lots were canceled over the past five years or so. There were no cancellations in 2021, when the property market was booming, followed by two lots in 2022, five in 2023, 25 in 2024 and 17 last year. Seven lots have been canceled this year through July.
While the total number of cancellations has been declining since last year, the share outside the Seoul area has been rising. Of the seven LH multi-unit housing lots returned by developers and contractors in the first half of this year, one was in Gyeonggi Province and six were in other regions. The sites include the provincial government relocation new town in Hongseong County, Chungcheongnam-do; the Miryang Nano Convergence National Industrial Complex in Miryang, Gyeongsangnam-do; the Goesan mini complex town in Goesan County, Chungcheongbuk-do; and Gyeongsan Daeim in Gyeongsan, Gyeongsangbuk-do. Of the 25 lots canceled in 2024, only four were outside the Seoul area, but last year 11 of 17 were, a marked increase in share.
"Continued cancellations in the regions are a signal that the overall management of multi-unit housing land contracts needs to be reviewed," Kim said. "Businesses are forfeiting their deposits and walking away, yet LH does not even know why the contracts were canceled. A comprehensive analysis of the causes and a management plan must be put in place."
Multi-unit housing land was once regarded among builders as a lottery ticket, offering high returns at low cost. The practice known as "swarm bidding," in which companies mobilized paper affiliates to improve their odds in lottery-based allocations, became a problem. Canceling a contract costs a builder the deposit, equal to 10% of the supply price. Even so, the rise in cancellations outside the Seoul area reflects a buildup of unsold homes in the regions combined with a slump in construction, analysts said.
Ministry of Land, Infrastructure and Transport data on unsold homes by local government showed that of 68,217 units nationwide as of July, 48,758 were outside the Seoul metropolitan area. Chungcheongnam-do had the most at 9,982 units, followed by Busan with 8,379, Gyeongsangbuk-do with 5,107, Gyeongsangnam-do with 4,627 and Daegu with 4,278. "With lending curbs reducing demand from out-of-area investors, apartments in the regions are likely to go unsold even after they are put on the market," said Park Won-gap, senior real estate specialist at KB Kookmin Bank. "Developers are giving up their deposits before losses get bigger."
The government announced plans on the 3rd to relocate central administrative agencies and state-run institutions, but the prevailing view is that the impact on regional property markets will be limited. The first round of relocations took considerable time before actual moves took place, and the effect falls short of expectations unless entire families relocate. Stable jobs and better settlement infrastructure are also difficult to deliver quickly. "The timing and locations of the public institution relocations have not been finalized, and buyer preference is concentrated in the Seoul metropolitan area," said Ham Young-jin, head of the real estate research lab at Woori Bank. "Infrastructure investment and population inflows are needed, so a quick solution will be difficult to come by."
