Cancellation of 17 Parcels Worth 1.9 Trillion KRW from January to July This Year
Hwaseong Dongtan 2 Mixed-Use Complex and Incheon Yeongjong Apartment Projects
LH "Supporting Buyers to Ensure No Disruption in Housing Supply"
More small and medium-sized developers are canceling their land development plans. Despite losses amounting to hundreds of billions of won due to economic recession, high interest rates, and project financing (PF) insolvency risks, they are giving up on land development. Although the government is making every effort to supply housing, there is an analysis that active bidding from the private sector may be difficult.
Cancellation Despite Hundreds of Billions in Losses
According to the Korea Land and Housing Corporation (LH) on the 16th, a total of 17 public land parcels worth about 1.9 trillion won were canceled from January to July this year. Compared to last year, when 5 parcels (374.9 billion won) were canceled, the number has increased more than threefold (and the amount about fivefold). By project area, 5 parcels (mixed-use residential and commercial) in Dongtan 2 District, Hwaseong-si, Gyeonggi Province, 2 parcels (mixed-use residential and commercial) in Unjeong 3 District, Paju-si, and 2 parcels (apartment complexes) in Yeongjong District and 1 parcel (apartment complex) in Gajeong 2 District, Incheon, were canceled.
Termination of public land acquisition contracts is possible if the developer who purchased the land delays payment for more than six months or if the overdue interest exceeds the contract deposit. The lending consortium that loaned money to the developer can request cancellation, or the developer can return the land voluntarily. The contract deposit (about 10% of the supply amount) is non-refundable upon cancellation. Additionally, a penalty with an added interest rate must be paid upon return.
In the case of the mixed-use residential and commercial land (Blocks 3 and 4) in Paju Unjeong 3 District, the supply contract was terminated last month at the request of the lending consortium. The developer (DS Networks) had proceeded with the project using the PF method and completed pre-subscription in 2022, but it is known that they could not find a construction company recently due to sluggish market conditions and rising construction costs.
In June, the development project for the mixed-use residential and commercial land (Block C-28) in Hwaseong Dongtan 2 District was canceled. The cause was the developer Regencyville Housing's delay in payment after acquiring the land. Nearby Block C-27 was also returned by the developer Yurichi in February due to financial difficulties, resulting in the project being scrapped. Yurichi reportedly canceled the contract despite losses of about 20 billion won.
A construction company official said, "Canceling land contracts involves considerable immediate losses. Nevertheless, developers cancel contracts because the market conditions and internal circumstances are that unfavorable." It is reported that developers give up on land development because they judge it difficult to earn profits. Especially for mixed-use residential and commercial land, where the highest bid system is applied, the burden is greater during high-interest periods when the popularity of commercial investments declines. For apartment complex land, the price ceiling system is applied, making it difficult to expect profitability from the start.
Government Faces Possible Setbacks in Housing Supply Plans
Some voices express concern that this market atmosphere could act as a stumbling block to the government's supply measures. With the cancellation of existing public land contracts continuing, active bidding aligned with government policies may be difficult. Recently, as concerns over housing supply and demand have increased, the government announced plans to supply more than 427,000 housing units in the metropolitan area over the next six years.
LH explained that in cooperation with the Ministry of Land, Infrastructure and Transport, it is strengthening support for buyers by easing resale restrictions on apartment complex land until the end of November this year. It is also supporting the issuance of land use consent letters before full payment is made to facilitate early building permits and smooth PF execution. The payment ratio required to apply for interim payment loans has also been lowered to 10%.
An LH official said, "When deciding whether to terminate contracts, we comprehensively consider the buyer's ability to fulfill the contract," adding, "For unsold land, we are implementing sales promotion measures such as interest-free installment sales and reassessment of supply prices." They emphasized, "We will ensure that there are no setbacks in district formation and housing supply through resale of canceled land and other measures."
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