'First Union Establishment Approval'... Apgujeong's Record-High Price March Accelerates Reconstruction

First Union Established in 4 Districts Under '2-Year Actual Residence Obligation' Regulation
Return Effect in Gangnam with Smart Single Property Amid Expansion of Regulated Areas

A view of Hanyang Apartment in Apgujeong 4 District, Gangnam-gu, Seoul, where the first reconstruction association was established (Photo by Ryu Taemin)

[Asia Economy Reporter Ryu Tae-min] “Since the end of last year, people who sold properties in the Seoul metropolitan area or provinces where housing prices rose have been flocking to Gangnam, Seoul. Now that reconstruction associations are being established and regulations are expected to be eased, they are trying to seize investment opportunities.” (A representative from a licensed real estate agency in Apgujeong-dong, Gangnam-gu, Seoul)

Despite the contraction in housing transactions, apartment prices in Apgujeong-dong, Gangnam-gu, Seoul?known as the ‘original Han Riverfront apartments’?have been hitting record highs day after day. As a complex in the area became the first to pass the initial hurdle of reconstruction?the approval for the establishment of a reconstruction association?expectations for the project’s success have spread, fueling buying demand.

According to the Ministry of Land, Infrastructure and Transport’s real transaction price disclosure system on the 16th, a 144㎡ (exclusive area) unit in Hyundai 6th complex in Apgujeong-dong, Gangnam-gu, Seoul, was sold for a record high of 4.1 billion KRW in January, breaking the previous record of 3.97 billion KRW set just 11 days earlier. The 84㎡ unit in Hyundai 14th complex in District 3 also joined the ‘3 billion KRW club’ for the first time in the area when it was traded for 3 billion KRW last month. The 82㎡ unit in Hyundai 3rd complex, which was priced in the 2.3 billion KRW range in December last year, was traded for 2.7 billion KRW last month, rising nearly 400 million KRW in just one month.

Apartment prices in the area have been steadily rising since the announcement of the ‘June 17 Real Estate Measures’ last year, which granted new apartments’ pre-sale rights only to reconstruction association members who have lived in the property for more than two years. Each complex hastened the approval for association establishment to avoid this regulation, accelerating the project, which acted as a positive factor. In particular, District 4 in Apgujeong was the first among six districts within the Apgujeong special planning zone to receive approval for association establishment on the 10th. Besides District 4, District 5 also applied for association approval in December last year, and results are expected within this month. Districts 1 to 3 plan to complete their association establishment applications within this month. According to the industry, the consent rate for District 1 was recorded at 81%, and Districts 2 (82%) and 3 (78%) have also exceeded the 75% resident consent rate required for association establishment.

As the regulated areas expand... ‘Reverse balloon effect’ turning to Gangnam’s ‘smart one house’

The government’s expansion of regulated areas is also cited as a cause for driving up housing prices in the area. When most areas in the Seoul metropolitan area such as Gimpo and Paju, as well as some metropolitan cities in the provinces like Busan, Daegu, Gwangju, and Ulsan, were designated as regulated areas en masse at the end of last year, demand rather concentrated on Gangnam’s ‘smart one house.’ A representative from a licensed real estate agency in the area said, “Since the end of last year, investors who sold properties in the metropolitan area or provinces have been flocking back to Gangnam. As Daechi, Cheongdam, Samsung, and Jamsil neighborhoods were designated as land transaction permission zones, investment is concentrating in Apgujeong, Banpo, and Seocho.”

Some analysts also say that the competitive pledges by opposition candidates to ease private reconstruction regulations ahead of the Seoul mayoral by-election have boosted expectations for reconstruction in Gangnam. Former People Power Party lawmaker Na Kyung-won proposed a plan to secure private-led supply by speeding up reconstruction through one-stop review. Preliminary candidates Oh Se-hoon and Ahn Cheol-soo also pledged to ease reconstruction and redevelopment regulations.

Experts evaluate that the mandatory residence regulation paradoxically encouraged the establishment of associations. Seo Jin-hyung, president of the Korea Real Estate Society (professor at Gyeongin Women’s University), said, “A ‘paradox of regulation’ occurred where association approval is obtained quickly to avoid the mandatory residence.” However, Professor Seo warned, “Because mandatory residence reduced the number of properties for sale, demand overflowed, making prices unstable. Contrary to the regulation’s intention to protect actual buyers, there is a risk that speculative demand may increase.”