The government is set to expand a new homeownership model that reduces initial financial burdens by introducing shared ownership and profit-sharing homes in public sales. However, experts caution that since this approach does not lower the sale price itself, additional costs for acquiring shares, usage fees, loan principal and interest, and disposal conditions must be considered for it to truly serve as a housing ladder.
According to the Ministry of Land, Infrastructure and Transport on August 19, the shared ownership model allows for gradual acquisition of housing shares, while the profit-sharing model utilizes loans from the Housing and Urban Fund and shares profits during the disposal process. The ministry announced plans to expand these two models into public sales on August 13.
The first test case will be the A17 block in Gwanggyo, Suwon, with a public sale announcement expected in October by the Gyeonggi Housing and Urban Corporation (GH). Of the total 600 units, 240 units with a floor area of 60 square meters or less will be offered under the shared ownership model. Buyers will initially pay only 10% to 25% of the sale price and will acquire the remaining shares over 20 to 30 years.
If the sale price is 630 million won and the initial share is 25%, the upfront cost would be 157.5 million won. However, this structure means owning only a quarter of the apartment's value initially, not purchasing a 630 million won apartment for just over 100 million won.
The price for additional shares will reflect not only the initial sale price but also the interest from regular savings until the acquisition date. For unacquired shares, a usage fee must be paid, capped at 80% of nearby rental prices.
In a simulation presented by GH in 2023, a home priced at 500 million won would see the initial 25% share acquired for 125 million won, with additional shares purchased every four years, leading to a total acquisition cost of 590 million won over 20 years. This total would also include usage fees for unacquired shares and loan principal and interest for the initial share acquisition.
Disposal conditions are another variable. The A17 block will have a five-year residency requirement and a ten-year resale restriction. After the restriction period, owners can sell to third parties, but profits will be shared with the public based on the ownership share at the time of sale. If a sale is necessary during the restriction period, conditions for public repurchase will apply.
The profit-sharing model involves sharing ownership while utilizing policy financing. It is expected to support loans from the Housing and Urban Fund with a maximum loan-to-value ratio (LTV) of 70%, and profits from the sale will be shared with the public. However, the loan limits, interest rates, and profit-sharing ratios have yet to be finalized.
Concerns have been raised that winners of desirable properties could benefit from significant price appreciation, leading to a 'lottery sale' controversy. Conversely, if the public's share is too high, buyers may bear long-term costs and risks without substantial asset formation.
Kim Seong-han, a senior researcher at the Korea Construction Industry Institute, noted, “While the low initial payment is an advantage, the total cost could become burdensome. We must also consider the rental fees for the remaining shares and the public's financial burden.”
Lee Eun-hyung, a researcher at the Korea Construction Policy Institute, stated, “If loans are included in the shared ownership model, it effectively increases the LTV. Since this is not yet a fully verified system, it should be implemented gradually.”
The success of the system will depend not only on the initial payment but also on the costs and disposal conditions over 20 to 30 years. To establish it as a housing ladder, the design must allow for manageable additional share acquisitions and usage fees, with clear exit strategies.
Yoo Seon-jong, a professor at Konkuk University’s Department of Real Estate, remarked, “Ultimately, the government can resolve this issue by easing loan regulations. The complexity of the system has increased as alternative solutions have been sought in a context of tightened loan regulations.”
* This article has been translated by AI.
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