S. Korea to spend 5 tln won to buy unsold houses, land from builders

SEOUL, Oct. 21 (Yonhap) -- South Korea said Tuesday that it will spend around 5 trillion won (US$3.78 billion) to buy land and unsold houses from builders in a bid to boost the nation's sluggish construction sector and revive the broader economy.

The plan is the first of its kind undertaken by the government in over a decade,
underscoring the serious conditions local builders are currently facing. The
government spent 2.6 trillion won in a similar move in 1998, when the nation was
still suffering from the Asia-wide financial crisis.
Under the measures jointly announced by the Finance Ministry, the Ministry of
Land, Transport and Maritime Affairs and the Financial Services Commission, the
government will spend 2 trillion won to purchase unsold houses and 3 trillion won
on land held by local builders at below-market prices.
The measures also include eased rules on home-backed loans, provision of
liquidity to cash-strapped builders and lifting some speculation-prone zones
where real estate trading is being restricted to cool the overheating market.
"The government seems to be viewing the current economic conditions as quite
serious, since taking such action runs the risk of sparking property
speculation," said Jeon Min-kyu, an analyst at Korea Investment & Securities.
"Despite the downside factor, it has no choice but to take those measures to
prevent a hard landing for the construction sector, which is closely linked to
domestic demand," he added.
The announcement came following a government move on Sunday to join global
efforts to tackle the ongoing financial turmoil by promising $130 billion in
foreign debt guarantees and a much-needed liquidity injection.
The bailout package was generally viewed as having a positive effect in easing
jitters over banks' dollar-funding shortage, but many observers say it is not
enough to soothe the overall economy, which is feared to slow due to prolonged
financial instability.
With fears that a worldwide economic slowdown will dent overseas demand for
Korean-made products, the construction sector has taken on more importance
recently, as it accounts for around 18 percent of the nation's gross domestic
product.
The sector has been under pressure, however, as many local builders are under
heavy debt. Things are looking to get worse before they get better, as tightened
credit conditions mean many homes cannot find buyers.
As of end of July, around 161,000 newly-built homes sat vacant across the
country, sharply higher than 103,000 a decade ago, according to the government
data.