Rising Trend of Unsold Completed Homes in South Korea

The South Korean housing market is facing a significant challenge with the continuous increase of unsold completed homes, commonly referred to as "malicious unsold homes." These properties, which remain unsold despite being fully constructed, have been on an upward trend for the past ten months, creating considerable burdens for the construction industry.

According to the Ministry of Land, Infrastructure, and Transport's May housing statistics, there were 13,230 unsold completed homes across the country, marking a 2% increase from the previous month's 12,968. This trend has been ongoing since August of the previous year, with the number of these homes reaching the highest level since November 2020, when the figure stood at 14,060 units.

This increase is indicative of a larger issue within the real estate market, where demand has not kept pace with the supply, resulting in a growing inventory of unsold properties. The construction industry is particularly affected, facing financial strain from maintaining these unsold units while also dealing with reduced liquidity and higher holding costs.

The problem of unsold homes is more pronounced in specific regions. Gyeongnam tops the list with 1,793 unsold units, followed by Daegu with 1,506 units, Jeonnam with 1,354 units, and Busan with 1,308 units. Even Seoul has seen a significant rise, with 539 unsold units last month, the highest figure in nearly a decade since July 2014 when there were 558 unsold units​.

These regional disparities highlight the uneven distribution of real estate market stress across the country. In areas where economic conditions are weaker or where there has been overbuilding, the accumulation of unsold homes is more severe. This not only impacts local construction industries but also puts downward pressure on property prices, which can lead to broader economic consequences.

The total number of unsold homes nationwide has also been on the rise, reaching 72,129 units, up by 0.2% from April, marking a six-month continuous increase. Notably, 79.5% of these unsold homes are located outside the capital region, with significant increases observed in Daejeon (+1,221 units), Busan (+930 units), and Incheon (+651 units)​.

This distribution indicates that the housing market's challenges are more acute in regional areas compared to the capital region. The higher proportion of unsold homes in non-capital regions suggests a misalignment between housing supply and demand, exacerbated by local economic conditions and population dynamics.

In May, the overall housing transactions totaled 57,436, a slight decrease of 1.3% from the previous month. This decline was more pronounced in the provinces, where transaction volumes fell by 4.0% compared to April. However, the capital region, particularly Seoul, saw an increase in transactions. Seoul's apartment transactions rose by 7.1% from the previous month and 39.3% year-on-year, driven by a continuous rise in apartment prices over the past 14 weeks​.

The increase in transactions in Seoul can be attributed to various factors, including rising apartment prices that have spurred buying activity as buyers anticipate further price increases. This contrasts sharply with the provinces, where economic conditions may be less robust, and the overhang of unsold homes continues to dampen the market.

The persistent increase in unsold completed homes is a clear indicator of ongoing challenges within the South Korean real estate market. Various governmental measures aimed at stabilizing housing supply and demand have not yet reversed this trend. The construction industry, in particular, faces mounting pressure as it grapples with the financial burdens associated with these unsold units.

Efforts to address this issue may need to include more targeted policies that consider regional disparities, stimulate demand in overbuilt areas, and potentially provide financial support to developers burdened by high levels of unsold inventory. Additionally, understanding and addressing the underlying economic conditions that contribute to these regional disparities will be crucial for creating a more balanced and stable housing market.