Impact from New Covid-19 Wave Unavoidable
The author is an analyst of NH Investment & Securities. He can be reached at minjae.lee@nhqv.com. -- Ed.
Due to Korea’s pandemic social distancing rules (upped to Level 4 restrictions since Jul 12), it is highly likely that there will be delays for some of the 60,000 housing units currently scheduled for pre-sale in July. However, considering the developments of 2020, we believe that most of the planned pre-sales will proceed smoothly in 2H21 via digital model houses.
Short-term impact from new Covid-19 outbreak unavoidable
Since 2015, the housing pre-sale ratio has averaged 4:6 pa in both 1H and 2H. In 2H21, we expect housing pre-sales to total 233,000. Amongst such, we believe that there will be a pre-sales concentration of 145,000 households in 3Q21, noting that monthly pre-sales volume is projected to exceed 50,000 units in both July and September. For reference, in 2H20, 227,000 units were sold, with 126,000 units being sold in 3Q20 alone (July: 46,000; August: 48,000; September: 32,000).
Due to pandemic social distancing rules (upped to Level 4 restrictions since Jul 12), it is highly likely that some of the 60,000 units up for pre-sale in July will be delayed. But, planned pre-sale volume for 4Q21 is sized at 88,000 units, a level 40,000 units below the recent historical 4Q average. Given such, pre-sale volume (which may be delayed due to Covid-19 in 3Q21) should have room to be digested in 4Q21, suggesting that annual pre-sale plans will not be significantly affected. For reference, full-year 2021 pre-sale volume is projected to top 400,000 units.
We believe that DL E&C will stand free from the recent Covid-19 issue, as it wrapped up more than half of its annual construction start target in 1H21. In addition, considering that most of the other large construction players completed over 35% of their pre-sale annual targets in 1H21, related risk appears low. Based on experience in 2Q20 and 4Q20 (periods of sharp increase in the number of confirmed Covid-19 cases), we view the chances of large-scale delays as being limited, pointing out that the pre-sale market remains hot.
Key construction/real estate news from last week
Move-in pre-registration for the third New Town is to start this month in 5 districts: 1,050 units in Gyeyang, Incheon, 1,535 units in Jinjeop district 2, Namyangju, 1,026 units in Bokjeong district 1, Seongnam, 304 units in Cheonggye district 2 in Uiwang, and 418 units in Wirye, for a total supply of 4,333 units. The capacity of Newlyweds Hope Town (housing for newlyweds) is 1,945 units, and there are plans for Cheonggye district 2, Uiwang, and Wirye supply to all be designated as Newlyweds Hope Town. The estimated pre-sale price is 60~80% of the surrounding market price. The notice of move-in pre-registration is to be posted on Jul 16, with receptions to open two weeks later.