Dunchon Jugong Subscription Begins... Will the PF Crisis Feared by the Bank of Korea Expand?

With over 6,000 units available for general sale, 'Olympic Park Foreon' and 'Jangwi Xi Radiant' are starting their subscription this week, raising concerns about the potential expansion of the crisis in the real estate project financing (PF) market. These complexes are large-scale sale units located in Seoul and attract significant market interest, so if the subscription competition rate is lower than expected, it is anticipated to further exacerbate the tightening of funds for other redevelopment projects and sales. The Bank of Korea, which has responded to PF market instability with liquidity support worth trillions of won, is also closely monitoring the subscription situation.

According to the real estate industry on the 5th, Olympic Park Foreon, which is reconstructing the Dunchon Jugong apartments in Gangdong-gu, and Jangwi Xi Radiant, redeveloping Jangwi 4 District in Seongbuk-gu, will start their first-priority general subscription on the 6th and 7th, respectively. Olympic Park Foreon began special supply subscriptions from this day. The financial and real estate markets view the success or failure of this subscription as having a considerable impact not only on the housing market but also on the short-term capital market. With the real estate market sharply contracting due to continuous base rate hikes, if even highly anticipated complexes see poor subscription rates, it could accelerate the real estate downturn and deepen credit tightening.

While the success of Seoul sale complexes was unquestionable during the housing price rise 1-2 years ago, this is no longer the case. Due to rising loan interest rates increasing interest burdens and continued declines in sales and rental prices, Seoul's subscription competition rate dropped significantly from an average of 164.13 to 1 last year to 21.91 to 1 this year. The sale prices of Olympic Park Foreon and Jangwi Xi Radiant range from 930 million to 1.31 billion KRW for an exclusive area of 84㎡, which is similar to or slightly lower than surrounding market prices.

The Bank of Korea, which has been on high alert for potential PF market crises, is also tense about the current subscription situation. After the 'Legoland incident' in Gangwon Province intensified liquidity tightening centered on the PF market, the Bank of Korea, together with the government, introduced liquidity support measures worth '50 trillion won plus alpha (α).' On the 28th of last month, it also announced an additional measure of 2.5 trillion won through repurchase agreement (RP) purchases by the Bond Market Stabilization Fund (Chaean Fund). Considering the capital market situation, the Bank of Korea had previously stated it would expand RP purchases in December, and the timing and scale are expected to be adjusted depending on the subscription results.

The real estate industry expects that while Dunchon Jugong may not experience subscription shortfalls, there is a high possibility of unsold units occurring later. Professor Kim Young-ik of Sogang University Graduate School of Economics pointed out, "The real estate market is in the early phase of price decline, and the downward trend is expected to continue for at least 2 to 3 years. Therefore, the capital market, including PF, will inevitably continue to face difficulties." A Bank of Korea official said, "If the Dunchon Jugong subscription does not go well, the capital market is expected to become considerably difficult. Since banks and securities companies that have already lent money are all involved, we are closely monitoring the situation."