[Backlash from Bunsangje] "Would any union member willingly accept selling at half the market price?"

The First Complex Subject to the Price Ceiling System: Gwangmyeong District 2

Unit Price Set at About Half the Market Price

The Association to Reassess Land Cost with New Official Land Price in February Next Year

Land Cost Appraisal to Be Redone

Members Willing to Bear Late Payment Interest on Interim Payments

[Asia Economy Reporters Kim Min-young, Kim Dong-pyo, Moon Je-won] "Who among the association members would willingly accept selling apartments worth well over 1 billion KRW on the market for around 600 million KRW?" The members of the Gwangmyeong District 2 association, a large complex with 3,344 households in Gwangmyeong New Town, Gyeonggi Province, have decided to postpone the originally scheduled sales to next year. This is because they could not accept the general sale price set at about 20 million KRW per 3.3㎡, which is far below the market price.

Large-scale redevelopment and reconstruction complexes preparing for general sales in Seoul and the metropolitan area have recently faced delays in their sales schedules due to conflicts over price setting, as well as various disputes. There are conflicts between construction companies and associations over increased project costs caused by sales delays, and emotional disputes between association members and general sale applicants. Inside the associations, conflicts between original residents and investors are also emerging. The implementation of the price ceiling system is fueling conflicts rather than stabilizing housing prices.

On the 13th, demolition work for reconstruction is in full swing at Dunchon Jugong Apartment in Gangdong-gu, Seoul. Photo by Mun Ho-nam munonam@

◆ Residents Enduring Even with Interest Burden = In the case of Gwangmyeong District 2, the price ceiling system has turned the area and surrounding redevelopment zones upside down. As the first complex subject to the price ceiling system, the sale price was set at 20 million KRW per 3.3㎡, about half the market price. For example, the sale price for an 84㎡ (exclusive area) unit cannot exceed 650 million KRW, while the market price for similar-sized new apartments in the area has already surpassed 1 billion KRW. The association plans to reassess the land cost appraisal after the new official land price is announced in February next year. Since the land cost appraisal is based on the official land price, reflecting this new price could allow the association to raise the sale price. During this process, association members are willing to bear late payment interest on delayed interim payments. In particular, members are pushing for a motion to dismiss the association chairman, holding him responsible for the excessively low sale price.

The Jinju Apartment in Sincheon-dong, Songpa-gu, Seoul, also postponed its originally planned July sale and plans to finalize the sales schedule around February next year after confirming the official land price. Although the Ministry of Land, Infrastructure and Transport announced a revision plan for the price ceiling system last month, it lacks key details such as land cost calculation, so local governments are waiting to provide precise review criteria. A representative of the apartment association said, "Associations will agree only if local governments add specific land cost surcharge items."

A representative of the Imun District 1 association in Dongdaemun-gu, which was scheduled to conduct building and unit number lotteries this year, said, "We expect to coordinate the sales schedule in the first half of next year," adding, "Local governments seem to be playing a waiting game over the application of new guidelines."

As sales schedules are repeatedly delayed, conflicts continue to multiply. The Dunchon Jugong Apartment reconstruction project in Gangdong-gu, Seoul, the largest single complex in the country, is currently at odds between the association and the construction company over association loans. The construction company has notified the association of a suspension of loan payments, accusing the association of unilaterally delaying general sales. The association reportedly exhausted 700 billion KRW in project funds as the general sales, originally scheduled for July, were postponed to next year due to pricing issues.

◆ Criticism That Only a Few Benefit from Lottery Sales = There are also criticisms that the system does not stabilize prices but only produces lottery-like sales benefiting a few. A representative of Association A pointed out, "If the price control sets the sale price at 30 million KRW per 3.3㎡ in an area where the market price exceeds 50 million KRW, the 20 million KRW difference goes to the buyers, not contributing to housing price stability." According to the Korea Research Institute for Construction Industry, in past regulated housing projects such as public housing districts, Wirye New Town, and Sejong City apartments, the annual return rate for buyers after resale restrictions were lifted reached 11%.

Senior Researcher Doo Sung-kyu of the Korea Research Institute for Construction Industry said, "Considering that the new supply market accounts for only 2-3%, it is difficult to expect housing stabilization effects from the price ceiling system, and it rather produces lottery-like sales." He also noted that considering the 2-5 year period required for housing supply, there is a possibility that housing supply may proceed contrary to economic conditions, which could lead to increased volatility in supply.

◆ Balloon Effect Inflating Prices of Non-Apartment Units = The price ceiling system is also causing a bubble in prices of non-residential units such as officetels, which are not subject to price regulation. On the 25th of last month, the officetel "Hillstate The Unjeong" in Paju, Gyeonggi Province, and the apartment "Gwacheon Hanyang Sujain" in Gwacheon City announced their recruitment notices on the same day. The sale price for an 84㎡ unit in Hillstate The Unjeong officetel was set between 885.2 million and 895.8 million KRW, while the 84㎡ apartment in Gwacheon Hanyang Sujain was priced lower, between 850.28 million and 886 million KRW.

There have also been cases of price inversion between officetels and apartments within the same complex. A representative example is "Dongtan Station Dieter Prestige," sold in the first half of this year. The 84㎡ officetel was priced at 916.6 million KRW, more than twice the price of the same-sized apartment units (440.34 million to 488.67 million KRW) sold just before the officetel. This phenomenon occurs because private supply apartments are subject to the price ceiling system and priced below market value, whereas officetels are not subject to the system, allowing developers and construction companies to freely set prices.