Park Yu-jin, Professor of School of Urban Planning & Real Estate, Chung-Ang University
Due to the recent collapse of apartments in Gwangju, there are growing voices about the introduction of the post-sale system, what do you think about this?
The recent collapse of Hwajeong I-Park in Gwangju has raised public anxiety about the poor construction of apartment complexes. As an alternative to this, discussions on the full introduction of the post-sale system, which allows tenants to directly check apartments just before completion before purchasing, are drawing attention again. The discussion on the mandatory post-sale system is an old topic that began discussions in the government in early 2003. A gradual transition to the post-sale system, which requires tenants to be recruited after the construction process reached 80%, was scheduled to take effect in 2007 but failed due to the global financial crisis. Since then, discussions have continued several times and continue today.
The pre-sale system has the effect of revitalizing the housing supply because it can reduce the burden of building costs for housing construction businesses and reduce the risk of unsold homes. In addition, there are some advantages for consumers as they can buy a house at a relatively lower price than the final market price. For this reason, many business operators choose the pre-sale system, and many consumers prefer it as well. Considering that the pre-sale system currently accounts for an absolute majority of the public housing supply method, the full transition to the post-sale system is expected to face practical difficulties such as financing risks and rising pre-sale prices. Rather, it is necessary to first compensate for direct problems that may lead to consumer damage, such as mandatory construction and pre-sale guarantees, which are the same as sample homes and the plan for the whole apartment complex. Even when introducing the post-sale system, it is essential to consider expanding it differentially by region, operator, and supply size in consideration of the impact on the market.
What are the advantages and disadvantages of the post-sale system?
The pre-sale system contracts housing purchases without the completion of the building. For this reason, consumers may suffer property damage and defects if the building is poorly constructed, completed differently from the plan for the whole apartment complex/model house, or if false and exaggerated advertisements are made. If an accident occurs during the construction process like Gwangju I-Park, or construction is suspended due to bankruptcy, the damage will also be passed on to consumers. In the case of the post-sale system, consumers can be relatively free from various problems arising from the construction process because they sign contracts after seeing almost completed homes.
On the other hand, in the post-sale system, construction companies must raise construction costs in the financial sector, which could eventually lead to a rise in pre-sale prices. The market could be reorganized around large companies with high funding and creditworthiness that can raise up to 80% of the project costs, which could make small and medium-sized real estate companies more vulnerable to bankruptcy risks. Under the pre-sale system, real estate companies can gradually raise construction costs from buyers in the form of down payments and intermediate payments, and consumers can buy at a sales price cheaper than the market price over a long period of time. In addition, areas with high housing demand can benefit from rising housing prices. From the government's point of view, the pre-sale system has been maintained for a long time because it is a system that can boost housing supply at a time when demand was rising faster than supply.
Could the expansion of the post-sale system be a solution to the problem of poor construction of apartments?
Like the pre-sale system, the problem of poor construction can be difficult to completely solve even under the post-sale system. Prolonged construction periods cause great damage to the project operator, and the construction can be carried out indefinitely because it must meet the fixed occupancy period during pre-sale. In addition, there is still a possibility that the post-sale system will proceed with excessive construction because the longer the construction period, the higher the financial cost of the construction company. Defects caused using insolvent materials and poor construction are also difficult for ordinary tenants to fully identify, even just before completion. Therefore, the post-sale system is difficult to be a fundamental solution, and I think it should be combined with correcting the ills of the construction industry.
If the post-sale system is expanded, how can it affect the housing market? And what do you think of the outlook for the post-sale system in the housing market?
The pre-sale system has been around for more than 40 years and there are many systems to be supplemented and maintained in the future to establish the post-sale system. Considering these facts, it is expected to take a considerable amount of time for the post-sale system to settle stably in the actual housing market. Until then, I think direct regulatory measures to reduce the risk of poor housing quality will be more effective.