"Which Apartment Is This? Two-Night 'Open Run' for Lease Contracts, Even Tents Appear"

Crowds Form in Front of Sangin Prugio Center Park in Daegu

CR REITs Acquire Apartment Left Vacant for Two Years

New Construction Offered at 100 Million Won Below Market Price

Attention Focused on CR REITs as a Solution for Unsold Unit

An apartment in Daegu that had remained unsold for nearly two years after its completion is now bustling with genuine home seekers trying to secure jeonse contracts. As jeonse supplies are being offered through a corporate restructuring real estate investment trust (CR REIT) at prices up to 100 million won cheaper than older apartments nearby, an unusual 'jeonse open run' phenomenon has occurred, with prospective tenants even pitching tents and bringing camping chairs to wait in line. This complex, once ignored by the presale market, has rapidly become a preferred choice for end-users thanks to its price competitiveness and security of deposit. This has fueled interest in whether CR REITs could become a realistic solution to clear long-term unsold inventory in provincial areas.

On the 8th, tents were set up in the waiting line for the second lease contract sale of a newly built apartment in Dalseo District, Daegu. The apartment was in a state of severe unsold inventory after completion, but a corporate restructuring real estate investment trust (CR REIT) purchased the property and started leasing sales, attracting public interest. Photo by Yonhap News.

Dramatic turnaround for a new apartment with 'zero contracts'

According to the real estate industry on September 9, Sangin Prugio Center Park, located in Sangin-dong, Dalseo-gu, Daegu, is a new development with 990 units. Although it was completed in April 2024, it remained unsold due to the prolonged market downturn. An announcement for resident recruitment was made in November that year, with incentives such as free balcony expansion, but applications were limited to 6 special allocation cases and 52 first and second priority cases, totaling just 58 applications. Not a single sales contract was actually concluded.

Ultimately, the complex was wholly transferred to a CR REIT specializing in purchasing completed unsold apartments. CR REITs operate by raising funds from investors, acquiring unsold homes in provincial areas after completion, leasing them out, and selling the assets once the real estate market recovers. This vehicle, used during downturns in the construction market, disappeared after being implemented in 2009 and 2014, but was reintroduced in 2024 by the Ministry of Land, Infrastructure and Transport.

The market response was unexpected. Even during the first round of jeonse supply in June, a long queue formed around the sales office ahead of the first-come, first-served contracts. In the first round, 549 units were supplied and within the first two days about 330 units were contracted with building and unit numbers specified. Subsequently, contracts were completed for approximately 420 units, excluding large-sized units. At that time as well, some customers camped out overnight in tents to secure a unit as part of the so-called 'overnight open run' for jeonse contracts.

On the 8th, tents were set up in the line waiting for the second round of jeonse lease sale at a newly built apartment in Dalseo-gu, Daegu. Photo by Yonhap News

The same phenomenon has been repeated during the second supply round. Ahead of the first-come, first-served unit selection process on the 8th, the waiting line began forming from the 6th, and between 200 to 250 people gathered at the site when registration started. Some waited up to 43 hours. The second round will supply about 440 to 441 units, and after the unit selection process, formal contracts will begin on September 11.

Cheaper than older apartments: new jeonse draws tenants

The most direct factor attracting demand was price. Jeonse deposits for the 84-square-meter units ranged from 222 million won to 260 million won, while 113- and 117-square-meter units were offered for around 300 million to 330 million won. Considering that the regional jeonse market price for 84 square meters in Dalseo-gu is about 300 million won, and approximately 450 million won for 113 square meters, the price difference by size ranges from 40 million up to over 100 million won.

In addition to the appeal of a new build, the ability to receive guarantee backing from the Housing and Urban Guarantee Corporation (HUG) was another major draw for end users. The basic lease period is two years, extendable up to four years if the tenant exercises their renewal right. Under this structure, the REIT assumes asset risk from potential property value declines, while tenants benefit from comparatively low deposits, new housing, and guarantee security. Some projects also offer eventual opportunities for the tenant to purchase the unit after leasing.

As a result, properties previously ignored in sale transactions became highly desirable to end-users when the price and financial structure changed. This suggests that the slump in provincial housing markets should be attributed not merely to 'lack of demand', but more essentially to a mismatch of supply pricing and financial conditions.

The CR REIT experiment spreads across Daegu

There are increasingly frequent cases in Daegu where unsold completions have been absorbed through CR REITs. Four CR REITs that registered with and applied to the Ministry of Land, Infrastructure and Transport last year have reportedly purchased more than 2,200 units of post-completion unsold apartments in Daegu.

The 'Suseong Lake Woobang IUshell' in Padong, Suseong-gu, is a representative example. The builder, Woobang, contributed all of the raised capital—46.7 billion won—to repurchase its own unsold units. The CR REIT acquired 288 out of 394 units for 125.5 billion won, about 83% of the appraised value. In April, a jeonse lease for an 84-square-meter unit in this complex traded for 230 million won, about 20 million won cheaper than the 250 million won required at nearby 'Suseong Haemoro High-en' and 'Suseongmot Kolon Haneulchae' apartments.

However, some point out that CR REITs are not a panacea that can solve the unsold housing problem in provincial regions across the board. Because REITs are, after all, investment products, they focus on selective investments where a certain level of return can be secured.

Price disagreements between sellers and investors are also variables. At certain sites, negotiations stall because sellers expect prices based on the original presale amount, while investors push for discounts of up to 30%. This means CR REITs can only function if unsold home prices are adjusted to offer sufficient returns to investors as well.

Will lease conversion be the breakthrough for Daegu's 'unsold graveyard'?

The unsold inventory problem in Daegu is still severe. As of the end of July, there were 4,278 unsold apartment units in Daegu, with 3,481 of those completed but unsold— the highest among all 17 cities and provinces in South Korea.

The government is also expanding support to invigorate CR REITs. The Ministry of Land, Infrastructure and Transport has extended the exemption period for additional corporate tax and comprehensive real estate tax for post-completion unsold homes acquired by CR REITs outside the capital region, and is providing mortgage guarantees to help operating companies lower their funding costs.

However, it is difficult to expect every unsold complex in provincial Korea to follow the path of Sangin Prugio Center Park. Viability depends on the combination of location, product appeal, lease demand, acquisition price, and financing cost. Ultimately, the success of CR REITs will hinge less on the sheer volume of unsold units acquired, and more on whether they acquire properties at market-reflective prices and convert them into residential products accessible to real end-users.

This content was produced with the assistance of AI translation services.