International Law

Builders Having Trouble Moving Apartments in Seoul

...now also in the crappier parts of the city, not just Kangnam. And affordability appears to be one of the factors (along with, I would guess, buyers’ uncertainty over whether we’re at the top of the market and whether the government is going to continue to meddle in the market).

The Dong-A Ilbo’s English edition reports that GS (formerly LG) Engineering & Construction, one of the top “brand-name” builders, can’t sell apartments it’s just completed in the rather downmarket northeast Seoul Jungrang-gu district, between Dongdaemun-gu and Hanam City. Only a quarter of the apartments, priced at W16.5 million per pyong (3.3m²), have been sold:

GS E&C constructed 411 units in the high-rise residential-commercial complex ‘Muk-dong Xi’, in Jungrang-gu, Seoul. Up to now, only 94 people, including those considered third priority, have applied to buy, creating a competitive rate of just 0.23. The going rate is 16.5 million won per 3.3m².

It’s puzzling, because the “Xi” (pronounced, if you’re curious, like “guy” if that word started with a “j") brand of apartments has one of the highest-quality perceptions. Perhaps in that neighborhood, W16.5 million is just too expensive. My guess is there are a lot of families earning W33 million per year—maybe they can’t justify saving 16 years’ income for the purchase of that apartment. (Even though 16 times income might seem excessive, it’s actually less than the median multiple of 19.5 for new apartments in Seoul.)

Demand for (relatively) affordable units somewhat near Seoul does not seem to be a problem, with price-slashed apartments in the satellite city of Yongin oversubscribed:

Conversely, Heungdeok district in Yongin City saw new and inexpensive apartments selling like hot cakes. Units in an apartment complex named ‘Hoban Verdium’ were offered at a 30% discount, or 10.6 million won per 3.3m². In this case there were 6,837 applicants competing for 229 units.

Thirty applicants for each apartment! This says to me that 32 pyong (1165 sq. ft gross space, 875 sq. ft net space) apartment units for W340 million (about US$373,000 at current exchange rates), a 45-minute commute away from Seoul on a good day, are perceived to be a raging bargain.

Apartments in Yongin are reportedly selling for prices generally about W17 million per pyong, which means that the buyers of Hoban Verdium basically won the lottery, But a 30%-off fire sale? I wonder if Hoban Construction and Hankook Construction, the builders, are facing the rumored cash crunch thanks to Roh’s intervention in the market. 

Full post as published by Korea Law Blog on November 11, 2007 (boomark / email).