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Proposed policy on redevelopment projects spooks buyers

Jan 31,2018
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After the government sent signals last week that it might impose restrictions on redevelopment projects in the affluent neighborhoods of Gangnam in southern Seoul, apartment prices there have shown mixed movement, unusual for an area that tends to only see home values go up.

“The asking price of a unit at Jamsil Jugong 5 Danji fell by 30 million won [$ 27,927] in a week,” one realtor said.

Gangnam refers to three districts in southern Seoul where the real estate market is considered the most heated. They include Gangnam, Seocho and Songpa. Here, home values are in line with the status of prestigious schools that populate the area, and the market expects them to go nowhere but up.

Redevelopment adds to the hype. Owners of apartments in buildings that are more than 30 years old can apply to have them knocked down and rebuilt. The value of their homes tends to skyrocket after the project is complete, and this leads many investors to prowl on buildings scheduled for redevelopment. The Jamsil Jugong 5 Danji complex, for instance, is ready to rebuild soon. It first opened in 1978.

Because these apartments are in such high demand, the government is worried about a real estate bubble and is making efforts to discourage buying. Last week, regulators suggested that they might force owners to forfeit some of their profit from redevelopment to the government if it exceeds a certain amount. A government simulation showed about 20 complexes in Seoul would be affected by this policy, and the average cost for each individual was 370 million won ($344,000).

The simulation apparently did its job of scaring potential buyers. The real estate agent at Jamsil Jugong 5 Danji said the price of an apartment there went from around 1.9 billion won at the onset of last week to around 1.87 billion won early this week.

The Eunma Apartment complex in nearby Daechi-dong, constructed in 1979, also took a blow, slipping from around 1.65 billion won to 1.6 billion won. “Some owners put their units up for sale after they got nervous about the government pressure,” said another realtor from Daechi. “Just last week, we didn’t have enough supply to meet demand from potential buyers, but this week, we have no one looking to buy a unit here.”

Newer apartments, meanwhile, are seeing steady demand. The asking price of a unit at the Raemian Firstige in neighboring Banpo-dong that was completed in 2009 went up by more than 100 million won, according to a realtor in the neighborhood. The value of one 84-square-meter (904-square-foot) unit stood at around 2.3 billion won in mid-January and is currently going for 2.43 billion won. The price of a similar-sized unit at the Raemian Daechi Palace in Daechi-dong rose by 250 million won compared to a month ago.

“Homeowners are not putting their units up for sale, believing the value of their homes will further increase,” said Chung Bo-kyung, a realtor near the Raemian Daechi Palace. “Among 1608 units, only two are up for sale at the moment.”

Buildings that are under construction are also hot on the market. While regulatory measures announced last August completely banned the trading of ownership rights of these new apartments, those who purchased one before November 2016 can still sell their rights to other prospective homeowners. The value of units at the Songpa Heliocity in Garak-dong, southern Seoul, set to open this December, witnessed a jump of as much as 200 million won compared to a month ago.

“Whether an apartment in Gangnam manages to dodge government regulations will decide the market,” said Kim Gyu-jeong, a researcher at NH Investment & Securities. “Newly-built apartments and ownership rights for them will continue to see price increases as regulations on redevelopment will only be seen as a factor that limits supply of homes.”


BY HWANG EUI-YOUNG [choi.hyungjo@joongang.co.kr]