Shinsegae Construction Faces Uncertainty in Recovering Construction Costs Despite Selling Out Unsold Units in Daegu

Billive Heritage, All 146 Households Find Owners
Uncertain Full Recovery of Construction Costs from Sales Proceeds
Over 100 Billion Won in Outstanding Payments for Other Apartments Too

Shinsegae Construction's sale of the ‘Billive Heritage’ in Suseong-gu, Daegu, has concluded after more than two years. In 2022, out of 146 units, 121 remained unsold, causing significant headaches for Shinsegae Construction. However, despite the complete sell-out, there are forecasts that recovering around 40 billion KRW in construction payments will be difficult. Since the construction payment claims are subordinated and the discount sale conflict has escalated into a lawsuit, it is analyzed that recovering the construction payments may be challenging.

According to industry sources on the 11th, the apartment complex Billive Heritage, constructed by Shinsegae Construction in Suseong-dong 4-ga, Suseong-gu, Daegu, recently found owners for all 146 units. A nearby real estate agent said, "Given Suseong-gu’s location, known as the Gangnam of Daegu, and the large-sized units built after a long time, there was some interest," adding, "As the sale prices dropped to levels comparable to surrounding market prices, the remaining units were sold faster than expected."

This complex was a significant sore spot for Shinsegae Construction. Apartments built by Shinsegae Construction in Daegu consecutively remained unsold, worsening the company’s financial structure. This site also became a headache as the initial sales rate was only 17%. Even after completion, the unsold status continued, and eventually, in November last year, the project financing (PF) loan maturity was not extended, leading to a public auction. However, the auction was also ignored. Bidding continued up to the fifth round in February this year, but only two units were sold. The remaining 119 units were ultimately converted to private contracts.

Although the unsold units were cleared, Shinsegae Construction is not celebrating. They need to receive construction payments from the sales proceeds, but their claim is subordinated. According to financial agreements, the main lenders (financial institutions that lent money to the PF project) recover the principal first and cover the project costs, and only from the remaining balance can construction payments be reimbursed. Shinsegae Construction has not received 43.6 billion KRW out of the 60.9 billion KRW in construction costs.

The developer borrowed 148 billion KRW from the main lenders, exceeding half of the sales proceeds. Additionally, the private contract sale prices were discounted by about 300 to 500 million KRW (25-27%) compared to the initial prices, reducing the expected sales proceeds. Existing buyers have opposed the discount sales and are currently pursuing damages lawsuits against the developer and the project trustee. If the existing buyers win, part of the sales proceeds will have to be refunded.

A Shinsegae Construction official stated, "According to the financial agreement, financial costs and project expenses will be paid first, and the remaining balance will be recovered," adding, "At this point, it is impossible to accurately estimate how much will be recovered."

Meanwhile, other ‘Billive’ apartments under construction in Daegu have yet to resolve their unsold unit issues. ‘Billive Radice’ in Bondong, Dalseo-gu, Daegu, has a sales rate of 31%, and ‘Billive Lucent’ in Chilseong-dong, Buk-gu, stands at 24%. Construction is about halfway complete, but unpaid construction fees amount to 73.2 billion KRW and 29.4 billion KRW, respectively. Even excluding Billive Heritage, unpaid construction fees in this area exceed 100 billion KRW. Unpaid construction fees refer to amounts billed to the client after completing contracted work or reaching the agreed progress rate but not yet received.