Eh I’m not that fond of this trend in the job market unless there some kind of fine the company pays for not hiring someone beyond what the job listing would cost. Sounds like the old “we like to test your skills by giving you this project” aka work we pan off to job applications but have no plans to hire anyone.
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I understand the skepticism and potential problems as you describe. However, for programming projects, this approach may appropriate. Consider you are in college, fresh out of bootcamp school, or self-taught coder. Lack of experience may cause difficulting landing a job. This way, you gain experience working on real-life projects even if you don't get the job.
At the same time, I doubt reputable companies would take advantage of applicants and reject completed projects just to get their work done for free.