LH rental housing program faces 'appropriate purchase price' dilemma amid rising costs

The South Korean government's plan to supply a large volume of rental housing in the Seoul metropolitan area, including 62,000 newly built units over the next two years, is facing scrutiny over the purchase prices set by the Korea Land and Housing Corporation (LH).

Concerns about inflated prices were highlighted by President Lee Jae-myung, who questioned LH's practice of buying newly built homes at prices exceeding their construction costs, suggesting the corporation was being exploited. Civic groups like the Citizens' Coalition for Economic Justice have pointed to specific cases, such as an officetel purchased by LH for 350 million won, which they claim was significantly higher than its market transaction price.

LH has historically used a method of averaging appraisals from two valuation firms to determine purchase prices. They briefly experimented with a "construction cost-linked" method for larger projects, but abandoned it in March due to concerns about delays and overpaying. The corporation now offers increased land acquisition support to private developers instead.

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There are reports that LH is being taken advantage of by being sold houses worth 100 million won for 120 million won.

However, the real estate industry argues that the current appraisal method fails to adequately reflect recent surges in land and construction costs. Experts note that the collapse of the villa market following a past fraud scandal had previously allowed LH to acquire properties at low prices. With construction costs at record highs and the Seoul villa market recovering, developers have less incentive to sell cheaply to the public sector.

LH, meanwhile, expresses reservations about reviving the construction cost-linked method, citing potential delays. They state that the current appraisal method, combined with incentives, is sufficient to manage the program effectively and that the number of participating private builders has not decreased.

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Because construction costs have risen so much and the Seoul villa market is recovering, there is no reason for private developers to sell houses cheaply to the public sector.