How Gangnam's Prime Land Became a Parking Lot Worth 300 Million Won per Pyeong [PF Crisis Aftermath]①

Report on Dosan-daero High-End Officetel Site
Sharp Price Increase During Real Estate Slump, No Buyers

Developers Unable to Repay Bridge Loans Face PF Crisis
Extensions Granted but Future Remains Uncertain

Editor's NoteWhile Taeyoung Construction's project financing (PF) crisis led to a workout decision, a wave of stagnation swept across construction sites nationwide. Not only at Taeyoung Construction's sites but also at other construction companies' sites, excavators came to a halt, and dump trucks disappeared. Especially from Gangnam, Seoul?known for its 'investment invincibility' myth?to Yeongjongdo at the edge of Incheon, construction sites have been halting work due to the downturn regardless of location. Due to liquidity shortages among construction companies, the amount paid by the Construction Mutual Aid Association for construction contract deposits has increased fivefold compared to the previous year. As the number of project suspensions and cancellations rises, forecasts predict a significant drop in housing move-in volumes. Asia Economy visited the sites affected by this cold wave.

[Aftermath of PF Crisis] Series Order
① Gangnam's prime land turned into a parking lot worth 300 million KRW per pyeong
② "Isn't the move-in next year?"... The empty apartment construction site
③ "We absolutely can't build it" Contract deposits repaid by others instead of construction companies, surging fivefold in a year
④ Seoul's move-in gap at the lowest in 34 years... More severe than the dark era during MB's administration

How Gangnam's Prime Land Became a Parking Lot Worth 300 Million Won per Pyeong [PF Crisis Aftermath]①

▲Site of 'Le Pierre Cheongdam'

Dosan-daero, stretching about 600 meters from Cheongdam Intersection in Seoul to the southern end of Yeongdong Bridge. Along this road, you encounter five high-end officetel sites in a row. Starting with 'Diapose Cheongdam 502' at Cheongdam Intersection, then every 100 meters, you see 'Lucia Cheongdam 514 The Terrace,' 'Diapose Cheongdam 522,' 'Le Pierre Cheongdam,' and 'Lucia Cheongdam 546 The River' sites in order.

These are prime lands valued at 3 billion KRW per pyeong (3.3㎡) according to the real estate valuation service 'Landbook.' However, there are two sites where construction hasn't even started. The real estate project financing (PF) crisis has paralyzed not only the provinces but also Gangnam in Seoul, including the prime area of Cheongdam.

Sale prices in the mid-200 million KRW per pyeong range... "Who would buy now?"

In front of the Lucia The Terrace site visited on the 26th, a 'Paid Parking Lot' sign was left hanging alone. Instead of heavy machinery, parked passenger cars filled the empty lot. The Le Pierre Cheongdam site still bore traces of the old Prima Hotel. Among broken concrete debris, only dump trucks for demolition work came and went.

"The Diapose 502 and 522, which were sold in 2022, had sale prices around 130 million to 150 million KRW per pyeong, so progress was good. Due to rising land prices, last spring, the sale price for Lucia The Terrace jumped to 230 million to 250 million KRW per pyeong. Le Pierre Cheongdam was said to possibly reach 300 million KRW," said the head of real estate agency A, who has been in Cheongdam-dong for 27 years.

He added, "But the atmosphere completely changed about a year ago. Officetels are investment products, so even those who have them just watch and wait during downturns like now; they don't want to invest. It's very serious now. Not even inquiries are coming in. Transactions have completely stopped."

He sighed, saying, "With sale prices suddenly more than doubling and interest rates rising, there is no demand. Since sales aren't happening, construction can't proceed." In fact, both Miraein, the developer of Le Pierre Cheongdam, and Lucia Holdings, the developer of Lucia The Terrace, have experienced real estate project financing (PF) crises.

Future also uncertain... "Nothing is decided"

Miraein faced a risk of default at maturity in August last year due to Le Pierre Cheongdam. The bridge loan amounting to 464 billion KRW became problematic. The main lenders, including Saemaeul Geumgo, agreed to extend the maturity until May this year, but the schedule beyond that remains uncertain. A Miraein official stated, "Nothing is decided yet, including contractor selection, construction schedule, or sale prices."

▲Lucia Cheongdam 514 The Terrace Site Location

Lucia Holdings is in a similar situation. This developer missed the repayment deadline for a 152 billion KRW bridge loan secured by The Terrace site in 2022. The officetel site was almost auctioned off but even that failed. Subsequently, there were complications in extending the bridge loan maturity, and since the 19th of this month, sales consultations have been held only for pre-registrants.

The future outlook is not optimistic. The head of real estate agency B in Cheongdam-dong said, "The developer's officetel sales team stopped visiting local real estate offices since last spring," adding, "Even if the bridge loan maturity is extended, if sales don't happen, the project itself won't proceed."

Developers need to change PF project structure

Professor Kwon Dae-jung of the Graduate School of Real Estate at Sogang University said, "Officetels will struggle more unless they are small to mid-sized, and Gangnam is no exception," adding, "Construction costs and interest rates are rising while profitability is falling, so who would be willing to start a loss-making construction project?"

Professor Kwon continued, "Small-scale developers take out loans to undertake construction projects worth hundreds of billions or even trillions of KRW, making it impossible to handle the interest. Unless the PF structure is changed, for example by introducing a 'capital-to-sales linkage system' that allows developers to undertake projects commensurate with their capital size, such adverse effects will repeat during every real estate downturn," he warned.