The government will offer public housing where buyers pay 25% of the purchase price upfront and acquire the remaining equity over 20 years. While this aims to reduce initial financial burdens, for a home priced at 510 million won, buyers will need to prepare 76.5 million won every four years for equity payments, in addition to rent, making long-term financial planning crucial.
On November 4, the Ministry of Land, Infrastructure and Transport announced the implementation plan for 'affordable public housing.' This follows the measures introduced in the August 13 policy, applying equity accumulation and profit-sharing models to some public housing projects managed by the Korea Land and Housing Corporation (LH).
The equity accumulation model allows buyers to acquire 25% of the purchase price upon moving in, with the remaining 75% purchased in five installments of 15% every four years. While acquiring equity is mandatory, buyers can defer this obligation for up to one year based on their financial situation.
Using the average public housing price in the metropolitan area of 510 million won (for a 55 square meter unit), the initial equity acquisition cost is approximately 128 million won. If a loan currently under consideration by the government is implemented, applying a loan-to-value ratio (LTV) of 40% would reduce the initial cash requirement to about 77 million won.
Shin Bo-yeon, a professor at Sejong University’s Department of Real Estate AI Convergence, noted, "The key aspect of the equity accumulation model is that it allows buyers to acquire the remaining equity over 20 years without needing a final payment loan, which will be a significant help to those who previously gave up on applying due to debt-to-income ratio (DSR) limits."
He added, "Since the price for acquiring the remaining equity is based on the initial purchase price rather than market value, it is also advantageous for asset formation."
However, buyers will need to secure separate funds for acquiring additional equity after moving in. Based on the 510 million won price, the principal for the 15% equity purchase every four years is 76.5 million won. The actual acquisition cost will be higher as it will also include interest over the period.
Rent will also need to be paid for the unacquired equity, calculated at about 90% of the surrounding rental market rate. In a scenario where the purchase price is 510 million won and the surrounding rental market rate is 400 million won, if paid entirely as rent, the monthly cost would be around 790,000 won. This is not the confirmed rent for Goyang Changneung.
Lee Eun-hyung, a researcher at the Korea Construction Policy Institute, pointed out, "Since rent must also be paid for unacquired equity, this system is suitable for households that can maintain a certain level of income over the long term."
The profit-sharing model II involves receiving a low-interest mandatory loan for 70% of the purchase price from the Housing and Urban Fund. The loan limit is 500 million won, meaning the initial cash requirement would be 153 million won based on a purchase price of 510 million won. The interest rate is 1 percentage point lower than the basic rate for the Didirim loan, with a maximum preferential rate of 0.5 percentage points also applicable. However, upon selling the house or repaying the loan, any profit from the increase in house prices must be shared with the fund based on the average loan balance ratio.
The first supply of LH's equity accumulation model will take place in December at the S-2 block in Goyang Changneung, with 284 out of a total of 1,057 units targeted. The government plans to expand supply next year and is also pursuing amendments to public housing special legislation to introduce profit-sharing model II.
The researcher emphasized, "Concrete funding strategies must be developed to operate the equity accumulation project over the long term, as the success and expansion of the system ultimately depend on actual operational results."
* This article has been translated by AI.
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