"Greater Capital Gains Than Reconstruction"…How to Get New Apartments at Lower Prices [Real Estate AtoZ]

There Are Villas More Expensive Than Apartments in Reconstruction and Redevelopment Areas...
"Worth Considering for Capital Gains When New Apartment Supply Is Insufficient"

Recently, villas in areas scheduled for redevelopment have been attracting attention. This movement is driven by the expectation that significant capital gains can be realized once the redevelopment projects are completed. Real Estate AtoZ examined the rise in villa sales prices and the increase in transactions.

Hannam 5 District Villa (77㎡ exclusive area) is smaller than Jamsil Els (84㎡ exclusive area) but has the same actual transaction price of 2.4 billion KRW...

According to the Ministry of Land, Infrastructure and Transport's actual transaction price disclosure system on the 12th, a villa with an exclusive area of 77㎡ (land right area 43㎡) in Hannam New Town 5 District was sold for 2.4 billion KRW on March 7. Meanwhile, Jamsil Els in Songpa-gu, part of Seoul's Gangnam 3 Districts (Gangnam, Seocho, Songpa), with an exclusive area of 84㎡, was sold for 2.4 billion KRW on the 11th of last month, meaning the smaller villa was sold at a higher price.

The expectation surrounding redevelopment projects has driven up sales prices. This villa is located in Yongsan-gu, where the Yongsan International Business District development plan was recently announced, and Hannam-dong within this area is known as a representative affluent neighborhood. The head of real estate agency A in Hannam New Town said, "In a situation where the real estate market is deteriorating, properties considered reasonably priced tend to receive inquiries," adding, "People are looking for these because they believe that once apartments are built, the capital gains will be substantial."

Villa sales prices in Hannam New Town are also rising. A villa in this area (exclusive area 75㎡, land right area 40㎡) has continuously increased in price since 2020 and was sold for 1.12 billion KRW on January 27.

Not only in Hannam-dong, but villa sales prices are also rising in the Gwangmyeong New Town area. The actual transaction price of a villa in this area (exclusive area 54㎡, land right area 31㎡) was 593.35 million KRW on March 5, up 35.4% from 438.05 million KRW in March last year.

"Buying villas in redevelopment areas yields greater capital gains"

A construction analyst stated, "Redevelopment projects are a way to acquire apartments more cheaply than purchasing new apartments through pre-sale," adding, "With both reconstruction and redevelopment projects heating up, buying villas in redevelopment areas to obtain new apartments through association member occupancy rights is also an option." He further noted, "As concerns about housing supply shortages grow and the government has announced plans to increase supply through reconstruction and redevelopment, villas in redevelopment areas are gaining attention."

In particular, this analyst emphasized that redevelopment projects yield greater development profits than reconstruction projects. He explained, "The project funds for redevelopment are raised through general sales," and "Since the number of households per unit area is higher in reconstruction areas than in redevelopment areas, redevelopment projects can supply more units for general sale." For example, if a reconstruction project increases the number of apartment units from 1,000 to 1,300, a redevelopment project might increase from 500 villa units to 1,300 apartment units. In this case, the larger volume of general sales in redevelopment projects makes it easier to cover construction costs and improves profitability.

View of Hannam 5 Redevelopment Promotion Zone, Dongbinggo-dong, Yongsan-gu, Seoul.
[Photo by Yonhap News]

On the other hand, there are concerns that active villa sales like these are difficult to achieve amid the real estate market downturn. The head of real estate agency B in Gwangmyeong New Town said, "Inquiries about villa sales within the project area are not very frequent these days," adding, "Although the real estate market situation is not favorable recently, such sales continue mainly around specific properties within the project area."