Bill seeks to scrap pre-sale restrictions tied to contractors' license suspensions, a rule with zero enforcement in 8 years

Lawmakers are pushing to scrap restrictions that delay pre-sales of housing projects when a contractor has received a license suspension or accumulated penalty points for shoddy construction. The move comes after it emerged that not a single housing project has actually been subject to the restriction since it was introduced, and that the rule risks deepening financing difficulties for project developers and delaying housing supply.

Eleven lawmakers — including 10 from the People Power Party led by Rep. Eom Tae-young and Reform Party Rep. Lee Jun-seok — jointly introduced an amendment to the Housing Act on Monday, according to the National Assembly on Friday. The bill would codify key pre-sale timing requirements directly in the Housing Act while removing a contractor's license suspension and penalty points under the Construction Technology Promotion Act as grounds for delaying the start of buyer recruitment.

Under current law and housing supply regulations, a project developer that has secured land ownership and obtained a pre-sale guarantee from the Korea Housing and Urban Guarantee Corporation can generally begin recruiting buyers after breaking ground.

However, if the developer or contractor receives certain license suspensions or accumulates penalty points under the Construction Technology Promotion Act beyond a set threshold, the start of buyer recruitment is pushed back. Depending on the length of the suspension and the severity of the penalty points, the developer must complete a specified stage of construction — such as the structural framework — before launching pre-sales.

When pre-sales are restricted, the developer cannot use down payments and installment payments as operating funds until construction is well underway. This increases reliance on project financing loans and the developer's own capital, driving up financing costs. Because the pre-sale launch is delayed, construction costs must be fronted for a longer period, and contractors themselves may face delayed payment recovery and added financial guarantee burdens.

The amendment would write the pre-sale eligibility requirements — currently set out in enforcement regulations — directly into the Housing Act, while removing a contractor's license suspension and penalty points under the Construction Technology Promotion Act from the list of grounds for delaying buyer recruitment.

Grounds for restricting pre-sale timing would be narrowed to cases where the project developer itself has received a license suspension under the Housing Act. If the bill passes, a contractor's suspension for shoddy construction or accumulated penalty points would no longer delay buyer recruitment for the housing project, as long as the project developer has not separately received a suspension order.

The current framework was expanded in 2018 to tighten sanctions against firms responsible for shoddy construction. The Ministry of Land, Infrastructure and Transport broadened the scope of pre-sale restrictions to cover not only project developers but also contractors, and linked penalty points under the Construction Technology Promotion Act to pre-sale timing, in order to prevent harm to residents from defective apartment construction. The related amendment to housing supply regulations took effect in September of that year.

Since the framework was introduced in 2018, however, not a single housing project has had its buyer recruitment delayed on the grounds of a contractor's license suspension or penalty points under the Construction Technology Promotion Act.

There have been cases in which major construction firms received license suspensions that could, under the current rules, have triggered pre-sale restrictions. GS Engineering & Construction received an eight-month suspension from the Ministry of Land, Infrastructure and Transport in 2024 in connection with the collapse of an underground parking structure at an apartment complex in Incheon's Geomdan new town. The restriction never took effect, however, because GS Engineering & Construction filed a lawsuit to cancel the order and simultaneously sought a stay of execution.

HDC Hyundai Development also received an eight-month suspension for shoddy construction linked to the Hakdong collapse in Gwangju, but a stay of execution prevented the order from being enforced. A suspension order related to the Hwajung Ipark collapse in Gwangju is likewise under a stay. An appeal in the lawsuit to cancel the Hakdong-related order is ongoing, as is administrative litigation over the Hwajung-related order.

If the amendment passes, construction firms currently contesting suspension orders in court are expected to see some of their burden lifted. A supplementary provision in the bill states that even suspension orders issued to contractors before the law takes effect would be subject to the amended rules if the orders have not been finalized by the time the law enters into force. If a suspension order remains unfinalized when the law takes effect, pre-sale restrictions tied to that contractor suspension would likely not apply even if the order is later confirmed.

The bill's sponsors argued that under the Housing Act, the responsible party for a housing project is the project developer — typically a developer or housing association — and that restricting the developer's buyer recruitment timeline because of a sanction imposed on the contractor raises questions of legal consistency. They also said it was inappropriate to use penalty points under the Construction Technology Promotion Act as a basis for pre-sale regulations under a separate law, the Housing Act.

The financing burden that post-completion sales place on project developers was also cited as a reason for the amendment. The bill noted that because post-completion sale requirements effectively bar developers from raising construction funds through pre-sales for a set period, matters as significant as buyer recruitment timing should be governed by statute rather than enforcement regulations.

Experts say the current pre-sale restriction regime imposes an excessively heavy penalty given how construction firms structure their financing, and that it overlaps with other existing regulations.

"Pre-sale restrictions are a considerably severe sanction even for large construction firms, given that the domestic housing construction industry relies on pre-sale proceeds to fund construction," said Seo Jin-hyung, a professor in the real estate law department at Kwangwoon University. "Because regulations surrounding contractors — including the Serious Accidents Punishment Act — already exist, this amounts to double regulation. Rules with low practical effect should be rationally reformed through social consensus."