Kim Heondong, President of SH Corporation, is holding a public briefing on the results of the Segok 2 District project at Haechansol Neighborhood Park in Jagok-dong, Gangnam-gu, Seoul on the morning of the 30th. [Photo by Ryu Taemin]
Kim Heon-dong, President of Seoul Housing and Communities Corporation (SH Corporation), announced the evaluation results of the Segok 2 District project and predicted a housing policy competition with Korea Land and Housing Corporation (LH) and local urban corporations.
On the 30th, Kim Heon-dong, President of SH Corporation, said at the public briefing on the Segok 2 District project results held at Haechansol Neighborhood Park in Jagok-dong, Gangnam-gu, Seoul, “Let’s compete with LH Corporation in quality and price by also disclosing the sale cost and project results like SH Corporation.” He added, “So far, LH has not played its role in stabilizing housing prices, so I don’t understand why the government entrusted the development projects of Yangwon District in Jungnang-gu, Seoul, or the Taereung Golf Course site in Nowon-gu to LH,” expressing regret that “there is not much work for SH Corporation.”
On this day, Kim announced that SH Corporation earned approximately 2.5 trillion KRW in development profits from the public housing project supplied in Segok 2 District, Gangnam-gu. The asset value of public housing increased about 11 times compared to the original plan.
Since 2009, SH Corporation has supplied 1,833 sale housing units and 1,962 rental housing units in Segok 2 District and sold 109,079㎡ of land to the private sector. Through this, the development profit was 2.5771 trillion KRW, about 11 times higher than the initial target of 235.2 billion KRW at the start of the project. This was due to a 33.6 billion KRW reduction in investment costs from decreased construction costs and the reflected asset value of 2.4549 trillion KRW for the 1,962 rental housing units.
The increase in SH’s development profits in Segok 2 District is analyzed to be due to the large supply of public rental housing. In 2009, under the policy of then Seoul Mayor Oh Se-hoon, the mandatory ratio of public rental housing in public development projects was increased from 25% to 50%, resulting in about 52% of public rental housing supplied in the district.
Meanwhile, the market price of public housing soared. The land development cost in Segok 2 District was 7.8 million KRW per 3.3㎡, but the market price of SH-owned public housing with an exclusive area of 84㎡ is currently about 1.8 billion KRW per unit, and the estimated land price is about 1.4 billion KRW. The land price per 3.3㎡ rose significantly to 79.38 million KRW.
The corporation also analyzed how project profitability would change if land-lease sale housing were supplied in Segok 2 District. Land-lease sale housing is a method where the land is owned by the corporation and only the building is sold to the private sector. The analysis showed that converting existing sale housing to land-lease sale housing or increasing the floor area ratio to expand the supply of land-lease sale housing would greatly increase development profits.
Converting the 1,833 sale housing units in Segok 2 District to land-lease sale housing would result in a cash business deficit of 394.9 billion KRW, but the increase in land asset value owned by the corporation would raise development profits to an estimated 4.3718 trillion KRW based on market prices.
In particular, raising the floor area ratio to 300% would allow the supply of 6,550 land-lease sale housing units, increasing development profits to 4.454 trillion KRW.
Additionally, SH Corporation plans to propose institutional improvements regarding project feasibility analysis standards and local public enterprise accounting standards. Current local public enterprise accounting standards do not recognize fair prices reflecting real estate price fluctuations, causing project feasibility deficiencies or accounting losses during project feasibility reviews.
Kim Heon-dong, President of SH Corporation, said, “We will continue to disclose project results of major business districts to fulfill citizens’ right to know,” and added, “We will continuously disclose public data to secure transparency and reliability in corporation management.”
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
