2024-03-02 11:44:26
In the past, reconstruction was the ‘goose that laid the golden eggs’.
If you own a small 10-pyeong apartment, you can move into a 30-pyeong apartment with almost no additional cost. In fact, in the case of Seoul Gaepo Jugong Complex 4 (currently Gaepo Xi Presidence), it is known that the owner of an exclusive area of 50㎡ only had to pay a contribution of regarding 100 million won to move into the exclusive 84㎡ (34 pyeong). In addition to Gaepo, the situation was similar in low-rise Seoul reconstruction complexes such as Banpo, Jamsil, Cheongdam, and Dogok. Not only did 5th-floor apartments with a floor area ratio of around 70-130% transform into high-rise apartments with a floor area ratio of 250-280%, generating market profits, but some complexes even received refunds based on general sale income. But now things are changing. Increasingly severe conflicts over construction costs and the snowballing issue of additional contributions are holding back the reconstruction market. There is also an analysis that this situation was predicted as the era of mid-rise reconstruction targeting existing 15-story apartments began. Now, there is a sarcastic comment that ‘reconstruction is a headache.’
But reconstruction is still effective. You can’t expect a ‘lottery’ like before, but if you choose a complex with the right conditions, you can expect not only an improvement in your living environment but also a certain amount of market profit. Here are a few hints: First, you need to find a medium to large-sized complex with a floor area ratio lower than 200% and an average land share per household (the land area owned by each household) of more than 50㎡ (approximately 15 pyeong).
In 5 years, the contribution increased from 300 million won to 1.2 billion won.
Union members of ‘Sinbanpo 18th Building 337’ in Jamwon-dong, Seocho-gu, Seoul were recently in confusion following being notified of a contribution that was 3 to 4 times higher than expected at the beginning of the project. Five years ago, when reconstruction was first promoted, the cost per household was estimated to be 300 to 400 million won if an apartment of the same size was sold.
However, when the union recently recalculated the contribution based on the construction cost presented by the construction company, a completely different result was obtained. Even if a union member who owns an exclusive 111㎡ apartment reduces the area and receives a 97㎡ apartment, the contribution that must be paid amounted to 1.218 billion won. Surprised by this, union members even formed an emergency response committee. Although the union and the construction company judged that the project might not be reversed now, a management and disposition plan accepting this contribution was eventually passed, but the Seoul reconstruction market is already in turmoil.
This apartment complex promoted reconstruction by rebuilding one 13-story apartment building located along the Han River into two 31-story apartment buildings. The number of households is 182, the same as before reconstruction, and all relocation and demolition have been completed, leaving only moving-in. The reconstruction contribution is the money that union members must share by subtracting general sale profits from the total construction cost of the maintenance project.
The problem is that other rebuilt apartments are in a similar situation. Apgujeong District 3, a key area for reconstruction in Gangnam, Seoul, is also in turmoil over higher-than-expected share costs. According to data released by the union this time, a union member who currently owns an exclusive 84㎡ unit must pay a contribution of 303 million won to receive a new apartment of the same size. Sanggye Jugong Complex 5 in Nowon-gu, Seoul, and Samik Beach in Busan, which were initially known to have good business feasibility, are also in an uproar over the burden of contributions exceeding 500 million won.
Due to this situation, although the government is easing regulations on maintenance projects on a large scale, housing prices in major reconstruction complexes are not rebounding. Consumers are feeling the burden of reconstruction costs more than the cost reduction due to deregulation. An exclusive 82㎡ unit in Jamsil Jugong Complex 5, which is considered one of the leading apartments in Jamsil reconstruction in Seoul, was traded for 2.67 billion won last month. This amount is a drop of 276 million won compared to last year’s high of 2.946 billion won.
An exclusive 31㎡ (11 pyeong) unit in Sanggye Jugong Complex 5 was exchanged for 460 million won this month. This is a 43% plunge from the all-time high of 800 million won recorded in 2021, and a drop of regarding 16% compared to last year’s high of 545 million won.
Apartment sales prices in areas with a high concentration of old houses, which are expected to benefit from reconstruction, are also showing no signs of rebound. Representative cases include Nodogang (Nowon, Dobong, Gangbuk-gu) and Eunpyeong-gu, which are concentrated areas of old housing in Seoul.
Seoul reconstruction cost ‘10 million won per pyeong’
Even 5-6 years ago, the reconstruction contribution per household was at most 300 to 400 million won by charging a high general sale price to reduce the burden on union members.
However, recently, as interest rates are high and construction costs such as raw material prices and labor costs have rapidly increased, there are a series of cases where the burden on union members increases significantly even if the general sale price is high. Of course, some point out that considering the increase in house prices due to reconstruction, the contribution must be tolerated.
The problem is that even taking this into account, construction costs are increasing too quickly. According to the results of a survey by the Housing Environment Research Institute, the average construction cost per 3.3㎡ per year for maintenance projects (reconstruction, redevelopment, etc.) increased by 50.9% from 4.556 million won in 2018 to 6.875 million won in 2023. In particular, the growth rate in 2022 (16.9%) and last year (13.4%) recorded double digits. In fact, the lowest construction cost for a recent reconstruction complex in Seoul is around 8 million won per 3.3㎡. Even 3-4 years ago, the price was in the 5 to 6 million won range per 3.3㎡. These days, conflict appears to be intensifying as reconstruction associations receive one following another bills from construction companies asking them to increase construction costs.
Hyundai Engineering & Construction, the construction company for the 1st, 2nd, and 4th blocks of Banpo Jugong Complex 1, the ‘biggest reconstruction project’ in the Banpo district, recently requested 4 trillion won in construction costs from the union due to increased labor and material costs and design changes. This is a 55% (1.4 trillion won) increase from the original contract of 2.6 trillion won. Samsung C&T and HDC Hyundai Development Company, the builders of Jinju Apartments in Jamsil, Songpa-gu, raised the construction cost from 5.1 million won per 3.3 m2 to 6.6 million won in April last year, and are in conflict with the union as they once more requested an increase to 8.89 million won.
Conflicts over construction costs are an obstacle from the stage of selecting a construction company. The Garak Samik Mansion reconstruction project in Songpa-dong, Songpa-gu, which recently closed the bidding for the selection of a construction company, was rejected even though the union proposed a construction cost of 8.1 million won per 3.3㎡. At last year’s bidding briefing session, eight large construction companies participated and attracted a lot of attention, but the results were different. Shinbanpo 27th and Jamsil Woosung 4th also plan to increase construction costs as construction companies do not participate in the construction company selection process due to low construction costs. An official from a reconstruction association in Gangnam said, “Construction companies are notifying the unions that in order to attach a high-end brand to Gangnam, the construction cost must be at least 10 million won per 3.3㎡.”
‘200% floor area ratio, land area of 15 pyeong’ is the standard.
Because of this environment, it is highly likely that the reconstruction market will be divided in the future. This means that you must thoroughly consider the value of the project before approaching it to avoid failure.
The first thing to check is the existing floor area ratio. It goes without saying, but complexes with a high floor area ratio and small scale are not suitable for reconstruction. In the reconstruction industry, it is believed that the average floor area ratio must be less than 200% and the size of the house must be 1,000 or more to proceed with reconstruction. Building 337 of Sinbanpo 18th Building, mentioned earlier, is a 15th-floor apartment ‘alone’, so it can be interpreted that a large amount of additional cost was incurred.
The second requirement is area composition. Complexes with a large average land area due to the large number of large households are advantageous for reconstruction. This means that even if the floor area ratio is low, if there are many small households, the feasibility of reconstruction may be reduced. In fact, Sanggye Jugong Complex 5 had an existing floor area ratio of 93%, but since all households consisted of only 37㎡, the average land area per household was narrow. Since the existing land is small, it is inevitable that a large contribution will be made to receive exclusive use of 84㎡.
Although it is a low probability, if you can expect an upside, your business feasibility will change significantly. A good example is that some reconstruction complexes in Yeouido-dong, Yeongdeungpo-gu, Seoul, actually received refunds following reconstruction. According to the revised plan for the reconstruction of Hanyang Apartment in Yeouido, 91.31 million to 142.98 million won can be refunded when receiving the same area of a new apartment in buildings A to C, which are exclusive 84㎡ hallways. Buildings D to E, which are terraced, receive 99.97 million to 142.42 million won when receiving exclusive use of 110 m2. According to the maintenance plan announced in March of last year for the Yeouido pilot apartment, it was estimated that a refund of 215 million won would be given to the owner of an exclusive 84㎡ unit when the 84㎡ unit is sold. This is the result of applying the general sale price of 64 million won and construction cost of 8.5 million won per 3.3㎡. The increase in the number of households for general sale due to the upward trend resulting from the creation of Yeouido financial center might lead to improved business feasibility.
The final requirement is the will of residents to pursue reconstruction. Usually, if the owner is older and lives in the house himself, he or she does not want to take on a significant additional cost and move to another house during the construction period of 4 to 5 years. Of course, this may not necessarily be the case if you look at the reconstruction of Helio City and Dunchon Jugong, which have around 10,000 households, and the reconstruction of mid-rise apartments in the Gangnam area, which are currently under construction. In general, the atmosphere of the reconstruction complex is checked through a local real estate agent. Before deciding to buy or sell, there is also a way to get a feel for it by living in a rented house.
[손동우 부동산·도시계획전문기자]
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