Developers seek housing associations to share unsold unit risk amid downturn

Real estate firms navigate the shifting landscape as unsold unit risks rise amidst economic challenges.

By Kim You-jin
Published 2025.03.26. 16:26

The appearance of the model apartment houses for sale in Seoul built on a site in Goyang City, Gyeonggi Province on the afternoon of last month 5. /Courtesy of Yonhap News Agency

Recently, construction companies participating in urban redevelopment and reconstruction projects have increasingly demanded that associations share the risk of unsold units. In the past, when the real estate market was booming, construction companies engaged in cutthroat competition to secure management projects, even guaranteeing completion; however, the prolonged downturn in the real estate market has changed this dynamic. In this ongoing recession, construction companies face a heightened risk of unsold units when bidding for management projects, except in some key areas of Seoul.

According to the construction industry on the 26th, the redevelopment project promoted by the Uijeongbu Housing Association in the vicinity of 424 Uijeongbu-dong is currently in the stage of selecting a contractor. It has been reported that companies such as Sangyong Construction and Hyundai Industrial Development are in contact with the association.

It has been reported that construction companies interested in this project are collectively requesting that the risk of unsold units be included in the member contributions of the association. Some construction companies have also requested that they self-finance 15% of the sales price reflecting the agreed unsold unit risk.

The demand from construction companies to share the risk of unsold units with the association is not limited to this project. With the risk of unsold units increasing recently, except in key areas of Seoul and some parts of the metropolitan area, most construction companies are demanding separate expense calculations from the association to prepare for unsold units at their business sites. The expenses used for marketing and discounts during sales were previously borne by construction companies just 5 to 6 years ago.

An official from a construction company said, 'In the case of regional housing association projects, the profitability is often lower than that of general projects, or the sales risk is higher. Therefore, recently, before participating in a project, associations are often imposing conditions that they must share the risk of unsold dwellings or commercial spaces.'

A banner stating ‘Over 100 million won discount’ is hung at the Purijio Apartment in Bango-gae Station, Naedang-dong, Seo-gu, Daegu last October. /Courtesy of News 1

This behavior of construction companies is occurring because recently, the number of unsold units has surged, making it difficult for companies to recover funds even after the completion of projects, leading to liquidity crises. Amidst a time when the likelihood of recovering funds is low, construction costs are also rising significantly, resulting in minimal profits from ongoing projects, which has led construction companies to be less aggressive in jumping into management projects than before.

According to the Ministry of Land, Infrastructure and Transport, as of January, the number of unsold dwellings nationwide stood at 72,624, a 3.5% increase compared to the previous month. Particularly concerning is that the number of unsold dwellings classified as malignant after completion reached 22,872, the largest scale in 11 years and 3 months since October 2013 (22,306 units).

Another official from a construction company stated, 'Even in Seoul, excluding core areas, there are projects with low profitability, not to mention regions outside the capital. In rural areas, many local construction companies are going bankrupt due to high unsold units, making it a difficult decision for companies to proceed with projects while bearing the risk of unsold units.'

In this situation, associations engaged in redevelopment projects are also facing challenges. An official from a housing association remarked, 'Many construction companies have recently demanded the unsold unit risk, which is causing difficulties in moving forward with projects,' and added, 'There is significant disagreement between the construction companies and the members of the association due to the recession in the real estate market.'

Developers seek housing associations to share unsold unit risk amid downturn - CHOSUNBIZ

Construction companies are increasingly demanding housing associations share the risk of unsold units, as the real estate market faces a prolonged downturn, leading to rising unsold units and liquidity crises. This shift is particularly evident in regional areas outside of Seoul, where construction companies are seeking to mitigate their financial risks. The Ministry of Land, Infrastructure and Transport reported that the number of unsold dwellings nationwide increased by 3.5% in January, reaching 72,624 units, with 22,872 classified as malignant, the highest in 11 years.