No More Reconstruction Dream for Gangnam

The new real estate sector showed mixed reactions after the amended version of the housing law passed parliament on April 2. The goal of the law is to cap sales prices and reveal the prime cost of houses.

Successful bidders on the commercial area in Ttukseom (Ttuk Island), which was dubbed the “last valuable piece of land in Seoul,” were relieved. However, reconstruction unions in Gangnam, which were hoping that the bill might be blocked, felt a sense of desperation.

The price of commercial land on Ttukseom will be recognized-

According to the Ministry of Construction and Transportation and the real estate industry, the new housing law will recognize the purchase price of land gained by public or private auctions when estimating land prices by appraised value.

Therefore, construction companies who bought commercial land in Ttukseom after paying more than twice its expected bidding price will not be damaged. The commercial land in Ttukseom is separated into four areas and is about 19,137 pyeong in area. Seoul City has sold three parcels up to 16,537 pyeong in size.

Daelim, the buyer of the third commercial area, said, “We are relieved by the fact that the price we paid for the land will be applied to the sales price. However, it will be difficult for us to announce the sales price we expected because of regulations.”

Daelim will soon finish its drafting work and apply for permission. The residential and business building built by this company will be on sale next year.

Infinitech of the first area (5,751 pyeong), which was successfully bid at 217 percent (299.8 billion won) of its expected price, and P&D Holdings of the fourth area, which made a successful bid of 444 billion won for 5,741 pyeong, can start their construction projects on the area. However, some experts are saying that land might be sold to another party because of the overdue interest that resulted from postponing schedules.

Competition for Ttukseom was fierce and many thought that the sales price per pyeong of this area would be over 40 million won because of its beautiful view of Seoul Forest.

Gaepo is not eligible for reconstruction-

People who were expecting to make money renovating apartments are at a loss now. In order to evade sales price caps, they have to get business permission by this August, and sales permission by this November. However, it will be very difficult to get both permissions on time.

If they fail to do so, the apartment reconstruction is not economically feasible because apartment owners should pay more money for reconstruction, not being able to raise the sales price for the reconstructed apartment.

Lee Yeong-su, the president of the Reconstruction Union of Gaepo Jugong 2, said, “It seems that everybody gave up. They are not even making calls. They expect that reconstruction can be possible in the next administration.”

Jang Deok-hwan, the president of the Reconstruction Union of Gaepo Jugong 4, said, “There are not many eligible apartments for reconstruction because of the regulations. Now, it has become almost impossible because of the sales price cap policy.”

Kim Jin-su, the president of a national reconstruction association, said, “We are getting ready to start administrative litigation through a law firm on this subject.”

sukim@donga.com