Seoul Reconstruction and Redevelopment Facing 'Difficulties' as Bunsangje Approaches

COVID-19 and HUG General Sale Price Negotiation Delay: Adding Insult to Injury

[Asia Economy Reporter Onyu Lim] Reconstruction and redevelopment associations in Seoul, such as Dunchon Jugong and Gaepo Jugong 1st Complex, are facing urgent challenges. To avoid the pre-sale price ceiling system, they must complete the announcement of recruitment for residents by the end of April. However, the spread of the novel coronavirus (COVID-19) and delays in price negotiations with the Housing and Urban Guarantee Corporation (HUG) have caused the projects to stall. It is a case of adding insult to injury.

According to Real Estate 114 and the construction industry on the 8th, the apartments scheduled for pre-sale in the Seoul areas subject to the price ceiling system in March and April include a total of 15 complexes with about 32,400 households: Dunchon Jugong in Gangdong-gu, Sinbanpo 13th, Sinbanpo 14th, Sinbanpo 3rd & Gyeongnam Apartments in Seocho-gu, Gaepo Jugong 1st Complex in Gangnam-gu, Heukseok 3rd District in Dongjak-gu, Yongdu 6th District in Dongdaemun-gu, Sangye 6th Complex in Nowon-gu, and Susaek 6th & 7th Districts in Eunpyeong-gu. They plan to complete the announcement of recruitment for residents by April 28 to avoid the application of the price ceiling system.

'The Largest Reconstruction Since Dangun' Dunchon Jugong Faces Growing Calls for 'Association Chairman Dismissal' Amid Stalled Negotiations with HUG

However, progress is slow due to various obstacles. In particular, Dunchon Jugong in Gangdong-gu, which accounts for 4,786 general pre-sale units?42% of Seoul's pre-sale volume in March and April?is experiencing severe conflicts over pre-sale prices between the association and HUG, as well as between the association and its members.

The reconstruction association of this apartment set the average general pre-sale price at 35.5 million KRW per 3.3㎡ at the general meeting for approval of the change in the management disposition plan last December and has been negotiating prices with HUG since late last month. However, the price proposed by HUG is reportedly below 30 million KRW per 3.3㎡. Although HUG recently revised some of its price review criteria, which had caused fairness controversies, there remains a significant gap compared to the association's set price.

As the association's progress remains sluggish, voices calling for the 'dismissal of the association chairman' are emerging. Various complaints about the overall project have erupted due to delays in negotiating the general pre-sale price. In fact, some association members are reportedly collecting consent forms to hold a general meeting for the dismissal of the chairman. There are also calls to pursue post-sale or rental-then-sale options, but these are difficult due to practical issues such as financing.

Time is Tight, but COVID-19 is a Hindrance... Must Complete Resident Recruitment Announcement by April 28

Gaepo Jugong 1st Complex, which had deep conflicts with commercial association members, barely reached an agreement last month, increasing the chances of avoiding the price ceiling system. The association plans to expedite the remaining project schedule as much as possible and issue the resident recruitment announcement before April 28 to start pre-sales. However, they must complete the approval of the change in the management disposition plan early next month and obtain HUG's pre-sale guarantee, making the remaining schedule tight. Any delay beyond expectations could jeopardize the avoidance of the price ceiling system.

Some projects are facing delays in their schedules because they cannot hold association members' management disposition change general meetings due to COVID-19. Susaek 7th District originally planned to hold the management disposition change general meeting on the 28th of last month, but Eunpyeong-gu Office recommended postponement due to concerns about COVID-19 transmission, delaying the meeting by about three weeks to the 21st. Susaek 6th District has a general meeting scheduled for the 28th, but it is uncertain whether the schedule will be maintained amid the COVID-19 outbreak.

Fortunately, since COVID-19 is an unexpected variable, the government is reportedly considering postponing the application timing of the price ceiling system. Changing the application timing requires amending the Enforcement Decree of the Housing Act, which is under the authority of the Ministry of Land, Infrastructure and Transport. Amending the decree usually takes three to six months, but using a fast-track process could make it possible within March.

Among the March and April pre-sale price ceiling avoidance units, Sinbanpo 14th is most likely to proceed with general pre-sales the earliest. It has only 67 general pre-sale units, and negotiations with HUG over prices are expected to be relatively smooth. The average pre-sale price of Le El Sinbanpo Central, which was sold in November last year, was 48.91 million KRW per 3.3㎡.