60 Trillion Won in Land Compensation for 3rd Phase New Towns... Concerns Over Housing Price Surge

Gwangmyeong-Siheung, Estimated at 10 Trillion Won

Factories in the Gwangmyeong-Siheung District area

The Gwangmyeong-Siheung district, which is 4.3 times the size of Yeouido, has been selected as the sixth 3rd generation new town, raising concerns that the subsequent land compensation funds may flow back into the real estate market and stimulate price increases. The estimated compensation amount is roughly in the 10 trillion KRW range, and when combined with the compensation amounts from existing 3rd generation new towns, about 60 trillion KRW of liquidity will be released.

According to development information company Jijeon on the 25th, the land compensation for the 12.71 million square meters of the newly designated public land for the Gwangmyeong-Siheung district, aimed at supplying 70,000 households, is estimated to be around 8 to 10 trillion KRW. Eleven years ago, when the Gwangmyeong-Siheung district was selected as a public housing site (17.13 million square meters), the estimated compensation scale was 8.8 trillion KRW. Although the designated area this time is 12.71 million square meters, which is 5 million square meters less than before, the increase in land prices is reflected, so the compensation amount may be similar or even higher.

According to the Ministry of Land, Infrastructure and Transport's individual publicly announced land price disclosure system, the official land price per square meter of a green area in Noonsadong, Gwangmyeong, rose 43.7% from 156,000 KRW in 2010 to 224,200 KRW in 2020. A green area in Gwarim-dong, Siheung, increased 34.3% from 223,000 KRW to 299,600 KRW.

An official from real estate agency A near the Gwangmyeong-Siheung district said, "About 10 years ago, when it was designated as a public housing district, undeveloped green land was about 1.2 million KRW per 3.3 square meters, but earlier this year, it was traded in the low to mid 2 million KRW range," adding, "Even when the district was deregulated, prices did not fall and steadily rose due to expectations that 'development will happen someday.'"

According to the ‘2021 Housing Market Outlook’ recently published by the Korea Institute of Construction Policy, land compensation related to public land such as 3rd generation new towns is estimated to reach 52 trillion KRW. This was before the announcement of the Gwangmyeong-Siheung district, and including it, the total land compensation scale due to the creation of 3rd generation new towns reaches about 60 trillion KRW.

Such a massive amount of land compensation is highly likely to return to the real estate market and act as a catalyst for rising housing prices. According to a 2006 survey by the Korea Land Corporation and the Housing Corporation on the ‘Real Estate Investment Intentions of Compensation Recipients,’ 43% of recipients answered that "they would invest the compensation in real estate." Considering this, about 26 trillion KRW could flow into the real estate market.

Researcher Jooan Kwon of the Korea Institute of Construction Policy said, "In a situation where market instability is increasing due to the rise of idle funds caused by low interest rates, if compensation funds flow into the real estate market, market instability will worsen." In fact, during the promotion of the 2nd generation new towns, about 60 trillion KRW of land compensation funds released stimulated housing price increases in the metropolitan area.

The government plans to maximize blocking the inflow of compensation funds into the market by increasing the proportion of ‘land-for-land compensation’ rather than cash compensation. The Ministry of Land, Infrastructure and Transport stated, "We have already completed institutional improvements in December, including selecting land-for-land target areas considering land-for-land area and resident preferences, and revitalizing land-for-land REITs," and added, "We will promote the activation of land-for-land compensation and resident-participatory development."