Public sale apartments in which buyers pay only 25% of the price up front, move in and then buy the remaining stake over 20 years will be offered for the first time in December in the Goyang Changneung district, Gyeonggi Province. With a dedicated loan, buyers can get in with 77 million won in cash, but they must come up with stake purchase costs in the tens of millions of won every four years and also cover monthly rent and loan interest.
On the 4th, the Ministry of Land, Infrastructure and Transport unveiled detailed implementation plans for equity-accumulation and profit-sharing type 2 public sale housing. The first batch is 284 of the 1,057 units that the Korea Land and Housing Corporation (LH) will launch in December at Block S-2 of Goyang Changneung.
Eligibility for subscription is a monthly income of 7.53 million won or less for a three-person household (15.07 million won or less for dual-income couples) and total assets of 362 million won or less. For households with two or more children, the asset requirement is eased to 431 million won.
Equity-accumulation residents first pay 25% of the home price, combining a 10% deposit and a 15% move-in payment. They acquire the remaining 75% over 20 years in five installments of 15% each at four-year intervals after moving in. For an apartment at 510 million won (55㎡ of exclusive area), the average price of public sale housing in the Seoul metropolitan area, securing the initial 25% stake costs 128 million won (actual calculated value 127.5 million won). If the dedicated loan the government is considering makes it possible to raise 51 million won, or 40% of the initial stake value, the cash needed falls to about 77 million won (76.5 million won).
Rent must be paid to LH on the 75% stake not yet purchased. The government plans to amend laws and regulations to raise the standard for setting rent from 80% to 90% of nearby jeonse market prices. If the surrounding jeonse price is set at 400 million won, the initial rent on the unacquired stake is 270 million won if paid entirely as a deposit, or 790,000 won a month if converted fully to monthly rent with no deposit. The ministry estimated that under the same jeonse price condition, living with a 130 million won deposit and regular monthly rent would cost about 1.24 million won a month. That is about 450,000 won less per month than regular monthly rent, but if the dedicated loan for the initial stake is used, interest must be paid separately.
When acquiring an additional 15% stake every four years, residents must pay the original sale price plus interest accrued in the meantime. Based on a sale price of 510 million won, this means paying 76.5 million won in principal plus interest each time. The government plans to let residents delay the stake purchase date by up to one year. When reselling to LH during the resale restriction period, it decided to apply the lower of two amounts after amending the law.
The resale restriction is 10 years from the announcement date of winners, and the actual residency requirement is five years from the first move-in date. If residents cannot pay the purchase price even after the one-year grace period, treatment differs depending on whether it is within the resale restriction period. Within 10 years, only public repurchase, which transfers the home solely to LH, is possible, and the repurchase price is set at the lower of the stake acquisition costs the resident has paid so far plus interest, and the appraised value. After 10 years, the home can be sold to a third party, but if LH’s stake remains, the resident must negotiate the price with LH and obtain its consent to dispose of the entire home. Even in this case, LH holds a right of first refusal.
Profit-sharing type 2, unveiled together, requires borrowing 70% of the sale price (capped at 500 million won) from the Housing and Urban Fund. For a 510 million won apartment, the resident borrows 357 million won and raises 153 million won of their own funds. The interest rate is the Didimdol loan base rate at the time of loan execution minus 1 percentage point, with up to a further 0.5 percentage point reduction if preferential conditions are met. However, the lowest of the fund’s policy loan rates at the time of the agreement (currently 1.2% per year) applies as the floor.
In return, when selling the home or repaying the entire loan, the increase in the home’s value must be shared with the fund. Under the existing sharing-type public sale, homes could only be resold to LH, and gains were calculated using an appraised value lower than the market price (about 90% of market price), leaving the resident’s share at only 70%. Profit-sharing type 2 allows free sale on the general market once the five-year resale restriction and the actual residency requirement (three or five years) are met. The increase is distributed in proportion to the average loan balance over the loan period, and the smaller the remaining debt, the higher the share going to the resident. For those who borrowed 70% of the sale price, the earlier they repay, the more the resident’s share rises from 30% to a maximum of 89.5%. Even without selling the home, residents are released from the profit-sharing obligation if they repay the entire loan before maturity and settle the increase up to that point with the fund once.
Profit-sharing type 2 requires an amendment to the Special Act on Public Housing, so there will be no supply this year. The government plans to submit the amendment within the year and begin supply after the law takes effect.
“This will be a practical homeownership support measure for those who found sale prices burdensome,” said Kim Yi-tak, first vice minister of land, infrastructure and transport.