"Reconstruction and Redevelopment Bound by Regulations, Supply Share Increasing Annually... 4 to 5 out of 10 Sites This Year"

[Asia Economy Reporter Yuri Kim] The proportion of reconstruction and redevelopment in housing supply is rapidly increasing. This year, nearly half of the apartments supplied nationwide by construction companies are from maintenance projects such as reconstruction and redevelopment. In particular, it is analyzed that Seoul's supply dependency exceeds 70%, raising concerns that if delays or suspensions occur due to the application of the private land price ceiling system, it could lead to a serious supply-demand imbalance.

According to Real Estate 114 and others on the 22nd, among the 350,878 housing units scheduled to be supplied nationwide by construction companies this year, 155,371 units, or 44.3%, are from maintenance projects such as redevelopment and reconstruction. Compared to last year's proportion of 29.9%, this is an increase of 14.4 percentage points. This is also the highest figure compared to the past decade since 2000. The proportion of maintenance project units has been increasing annually since recording 11.2% in 2013 and has exceeded 20% since 2017.

In Seoul, the dependency on maintenance projects for supply is virtually absolute. Of the 55,525 units scheduled for supply this year, 42,308 units, or 76.2%, are from such projects. This means that 7 to 8 out of every 10 new apartments are reconstruction or redevelopment units. Seoul's proportion has also been gradually increasing, from 69.3% in 2018 to 74.4% last year, and 76.2% this year. The scheduled supply volume of maintenance projects in Seoul this year is more than double the actual supply volume of 20,560 units last year. This is due to many redevelopment and reconstruction projects planned by construction companies last year being postponed due to difficulties in coordinating sale prices with the Housing and Urban Guarantee Corporation (HUG). In fact, the actual sales performance compared to plans was 57% in 2018 and 68% last year.

The increase in the proportion of maintenance projects in housing supply is believed to be because, except for some regions like Gyeonggi and Incheon where large-scale land development projects are decreasing, redevelopment and reconstruction of aging residential areas are increasing mainly in large cities. Besides Seoul, among other large cities, Busan has a maintenance project dependency of 77.3% this year, and Daegu is at 62.0%.

Therefore, there are concerns that many maintenance projects will face setbacks when the grace period for the private land price ceiling system ends at the end of April. Although supply is expected to temporarily increase due to a push for sales to avoid the ceiling system, projects may shrink again after April.

Currently, in Seoul, complexes planning to launch sales by April include Dunchon Jugong in Dunchon-dong, Gangdong-gu, totaling about 12,000 units, as well as ▲ Heukseok 3 District in Heukseok-dong, Dongjak-gu ▲ Yongdu 6 District in Yongdu-dong, Dongdaemun-gu ▲ Jangwi 4 District in Jangwi-dong, Seongbuk-gu ▲ Jeungsan 2 District in Jeungsan-dong, Eunpyeong-gu. However, these projects face many procedural variables such as demolition, groundbreaking, and price coordination with HUG, so it remains uncertain whether supply will proceed as scheduled. In particular, if project schedules are delayed, it is difficult to rule out the possibility of prolonged supply delays due to profitability deterioration from the price ceiling application and resident conflicts.

Some also express concerns that if redevelopment and reconstruction districts in the early stages of projects slow down or postpone due to the price ceiling system, it could negatively affect mid- to long-term housing supply. Ham Young-jin, head of the Zigbang Big Data Lab, said, "Early-stage projects will lose momentum, leading to slower progress and increased cautious demand," adding, "In regions like Seoul that heavily rely on maintenance projects for supply, disruptions in demand and supply could undermine the long-term effect of stabilizing housing prices."