A 30-year-old individual, referred to as A, is contemplating applying for land-lease housing. Known as 'half-price apartments,' these homes offer the possibility of owning a property in Seoul for around 200 million won, attracting interest from A's acquaintances. A expressed, "Even if I secure a land-lease home, I will have to pay monthly rent for the land for life, so I am uncertain about whether to apply."
Interest in land-lease housing is growing. This model involves the public owning the land while only the buildings are sold, allowing for lower housing costs by separating land value. However, while the initial purchase price is low, monthly land rent must be paid, and there are restrictions on selling the property. How should one approach applying for land-lease housing?
Once Overlooked, 'Half-Price Apartments' Now Face Intense Competition
Land-lease housing, as the name suggests, involves purchasing only the building, excluding the land. This method allows buyers to acquire homes at relatively lower prices by removing the significant cost of land from the total price.For instance, the Seoul Housing and Communities Corporation (SH) began the application process on October 16 for the Godeok Gangil Phase 3 land-lease housing project, which includes 1,305 units. The selling price for a 49-square-meter unit ranges from 280 million to 320 million won, while a 59-square-meter unit is priced between 340 million and 390 million won.
In the past, land-lease housing faced a lack of interest from potential buyers. In 2007, only 40 out of 389 units were applied for in the Gunpo Bugok district, leading to a shift to general sales. In contrast, properties in Seocho 5 and Gangnam Breeze Hill saw their 84-square-meter units sell for 1.25 billion and 1.33 billion won, respectively, after resale restrictions were lifted, sparking a 'lottery application' controversy.
Recently, rising home prices in Seoul have increased interest in housing options with lower initial financial burdens. Earlier this year, the Magok 17 project attracted about 20,000 applicants for 381 units, resulting in an average competition ratio of 125 to 1.
While Selling Price is Half, What are the Actual Living Costs?
With land-lease housing, buyers own only the building and must pay monthly land rent. For the Godeok Gangil Phase 3 project, the monthly rent is 426,000 won for a 49-square-meter unit and 511,500 won for a 59-square-meter unit. Assuming the rent does not increase over ten years, this adds approximately 51 million and 61 million won, respectively.Rent can be increased after two years, but the increase cannot exceed the current limit of 5%. Up to 60% of the rent can be converted into a deposit, but this increases the initial financial burden.
Loans also play a significant role. SH plans to offer loans through the Housing and Urban Fund, providing up to 500 million won with a maximum loan-to-value ratio (LTV) of 80%, a maximum term of 40 years, and fixed interest rates ranging from 1.9% to 3.0%.
If applying the 80% LTV, the buyer's own funds would need to be around 20% of the selling price, which is approximately 56 million to 78 million won. Assuming an 80% loan on the selling price of a 59-square-meter unit, the monthly interest would be about 430,000 to 780,000 won, leading to a total monthly cost of 940,000 to 1.29 million won when including land rent.
Ownership Comes with Restrictions on Selling: What are the Resale and Buyback Conditions?
For the Godeok Gangil Phase 3 project, residents must live in the property for five years from the initial move-in date, and resale is restricted for ten years from the announcement of winners. To sell during this period, homeowners must apply to SH for a buyback.If a homeowner wishes to sell before the five-year residency requirement, they will receive their initial payment plus the average interest from a regular deposit. After five years but before ten years, they will receive 70% of the profit from the property’s appraisal value minus the initial payment, added to the initial payment. However, if this amount is less than the sum of the initial payment and deposit interest, the latter will be used as the basis for payment.
After ten years, private transactions are allowed, but the buyer will also only own the building and must pay land rent. Approval from SH is required for any redevelopment.
The land lease period is up to 40 years, but if more than 75% of building owners request an extension, it can be renewed within that timeframe. While residents can potentially live for up to 80 years, this is not automatically guaranteed.
If a winner forfeits their contract, they and their spouse or household members will face a ten-year restriction on reapplying. A cancellation after signing the contract incurs a penalty of 10% of the total initial payment.
Ultimately, land-lease housing can be a viable option for those planning to reside long-term, as it lowers initial financial burdens. However, potential applicants should weigh the costs of land rent, loan principal and interest, and selling conditions against short-term profit expectations, focusing instead on long-term housing stability.
* This article has been translated by AI.
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