A 'Basic Home' Scheme
The author is an analyst of NH Investment & Securities. He can be reached at minjae.lee@nhqv.com. -- Ed.
As part of his real estate policies for the upcoming 21st presidential election, Lee Jae-myung (governor of Gyeonggi Province) is pledging to supply more than 2.5mn housing units, 1mn units of which are to be distributed under a basic home scheme. If the scheme proves to include the provision of high-quality housing units, it should usher in strong opportunities for large construction players.
Pledging housing supply expansion and basic home scheme
Gyeonggi Province Governor Lee Jae-myung, the presidential contender for the ruling Democratic Party of Korea (DPK), pledged last week that he will boost housing supply by more than 2.5mn units. Amongst such, 1mn units are to be distributed under a basic home scheme. The basic home scheme is to give non-homeowners the right to live in high-quality public housing in desirable locations (eg, near subway stations) at a rent price as low as the construction cost, with the long-term(30-yr) public housing portion being upped to 10%.
Lee also has proposed to: 1) adopt a national land tax scheme in which property transaction taxes are to be reduced, while at the same time property holding taxes are to be increased; 2) expand financial support and introduce a tax deferral system for non-speculative home buyers; and 3) adopt a blind trust scheme for high-ranking officials, and prevent persons with multiple houses from being recruited for and promoted to high-ranking positions.
Assuming that he will implement his basic home policy as well as housing supply expansion policies that are similar to those under the current administration, the long-term subsidized housing portion out of total houses nationwide is predicted to increase from 5% as of now to 10% down the road. In the past, small/mid-sized constructors benefitted from the government’s subsidized housing projects, which centered upon low-quality housing units. But, if the government decides to supply high-quality subsidized houses, we expect large builders wielding brand power to land orders going forward.
Key construction/real estate news from last week
Over the fourth week of July, domestic rebar prices strengthened, with the figure (based on distribution channel price) rising 9% w-w to W1.21mn/ton. During the first week of August, the rebar price edged up only by W10,000/ton w-w, affected by the summer vacation season. That said, we believe that the rebar price uptrend remains alive, with a sudden drastic price rise looking possible anytime. Of note, 3Q is a traditional peak-season for the rebar market. While the steel industry having announced a 7.3% price hike to W925,000/ton for 3Q21, we point out that a considerable portion of the hike has already been reflected during August. Based on leading indicators for the rebar market including housing starts, 2H21 rebar demand is estimated to expand 9% y-y to 5.5mn tons. Considering domestic rebar production plans and rebar export/import, supply is expected to exceed demand only by 10,000 tons in 2H21. Aware of the possibility of rebar shortage, the government plans to actively investigate market disrupting activities (such as hoarding), as well as promoting domestic steel companies to push up their facility utilization rates.