"The State Has Set the Stage for Real Estate Development"... Industry Reviewing New Projects After January 29 Measures [Real Estate AtoZ]

"Regulatory easing and fast-track effects
Improved order environment for construction companies"

Kim Yunduk, Minister of Land, Infrastructure and Transport, visited the south site of Seoul Medical Center in Samseong-dong, a housing project related to the January 29 measures, at a building in Gangnam-gu, Seoul on the 4th and listened to explanations from officials of the Korea Land and Housing Corporation. The site, owned by the Korea Land and Housing Corporation, is expected to provide 518 housing units. Photo by Kang Jinhyung.

The government's January 29 measures to supply housing in downtown areas are energizing the real estate development industry, which is now reviewing new projects. As the government has made public the locations and construction schedules for more than 10 public idle sites, including the Yongsan International Business District, and 34 outdated government office buildings, developers judge that this will also create momentum to develop nearby private idle land. The prevailing view on the ground is that an industry that had been tied up until last year with the cleanup of distressed project financing (PF) is, starting this year, moving on to reviewing project scale and analyzing business feasibility.

"Scale reviews already underway...Preparing a new game board after the PF crisis"

An executive at a real estate development company said on the 11th, in connection with the January 29 measures, "Unlike redevelopment or reconstruction, developing idle sites does not involve the issue of relocating existing residents, so the driving force for implementation is strong," adding, "The very fact that the government has openly presented the site list and construction schedule is a positive factor." He added, "Companies in the industry are already conducting scale reviews and business feasibility analyses." The implication is that as the industry, which had been absorbed in dealing with distressed PF through last year, is wrapping that up, it has begun to turn its attention to new projects. He further predicted, "New projects will get fully underway around next year."

Securities firms are offering a similar assessment. In a recent report, Park Sera, a researcher at Shin Young Securities, evaluated the government's supply measures in terms of "how efficiently underutilized sites in Seoul are used," and said, "The state is stepping in to lay the groundwork for development." Park said, "It is not a mere declaration, but an indication that the government will standardize implementable models and move directly into execution," adding, "From the private sector's perspective, this can be taken as a signal that 'the city will not leave idle sites untouched,' which can spur active efforts to utilize such sites."

"Tax deferral on in-kind contributions is a catalyst"

Institutional changes are also playing a role in reviving private development. An official at the Ministry of Land, Infrastructure and Transport said, "We have implemented an institutional improvement that allows tax to be deferred when making in-kind contributions to project REITs (Real Estate Investment Trusts)," and added, "Once public housing sites are created, we may see private development activity around them that uses new investment vehicles."

Project REITs, which took effect in November last year, are structured so that a REIT is established for each individual development project and raises funds from multiple investors. For private landowners who had been unable to move forward with development due to tax and financing burdens, the threshold for commercializing their land has been lowered.

Lee Kyungja, a researcher at Samsung Securities, said, "Even when owners hold high-quality sites, idle land that could not be developed because of tax and financing burdens will now have a higher likelihood of being commercialized," adding, "The project REITs system will facilitate this."

Yongsan is a representative area. Under the latest measures, about 14,000 housing units are slated to be supplied in the Yongsan area alone, including 10,000 units in the Yongsan International Business District. Lee expects that once large-scale supply is carried out, foot traffic will increase and nearby infrastructure will be upgraded. The analysis is that companies that have already secured sites in the vicinity, such as Seobu T&D, which is pursuing a development project worth about 1 trillion won on the site of Najin Shopping Center Buildings 12 and 13 adjacent to the Yongsan International Business District, could benefit. Seobu T&D's acquisition price was only 100 billion won.

"Construction domestic demand rebound begins"

From the perspective of construction companies, there is a view that government-led projects will provide stable order opportunities at a time when private housing supply is constrained. Park said, "The sluggish domestic construction market is expected to rebound this year, supported by the government's pump-priming investment," and added, "As development demand expands, private construction and housing orders will also increase."

Lee also said, "Most of the construction start dates for the newly announced supply plans fall between 2029 and 2030, so the short-term impact on earnings is limited," but added, "Because institutional improvements such as streamlined permitting procedures, exemptions from preliminary feasibility studies for public corporations, and fast-track systems are being promoted in parallel, the environment is favorable for construction companies."

Ultimately, the pace of private development appears to depend on how quickly the government's construction starts become visible. Another executive in the real estate development industry said, "There are still variables, such as consultations with local governments and issues related to site relocation," but added, "Once it becomes clear that government development projects are actually moving forward, private development will also gain speed."

An official at the Ministry of Land, Infrastructure and Transport said, "In the past, we only made declarations that 'we will develop,' but did not have the tools," adding, "This time, we have put in place implementation tools such as shortening the period for land compensation negotiations and proposing a law for complex development of outdated government office buildings, so our capacity to execute is stronger than ever."