The Dream Hub fantasy

The country’s largest-ever urban development project, with a colossal price tag of 31 trillion won ($28 billion), may go down the drain. Dream Hub, the special-purpose company behind the Yongsan International Business District project, failed to meet the deadline for an interest payment on its asset-backed commercial loan. The liquidation process would cause losses of billions of dollars and expensive chain lawsuits among the largest stake-owner, state railroad operator Korail, and other corporate investors and residents of Yongsan District. The project was ambitiously pushed ahead six years ago based on greedy and vague fantasies about renovating the banks of the Han River and raking in the real estate gains.

The chances of resuscitating this elephantine project now appear slim. High rises along the skylines of both the Han River and Incheon are largely empty due to the real estate slump. It would be wiser for authorities and concerned parties to sit down and coolly discuss how best to exit this money-losing project without further damage.

Accountability may eventually end up being decided on by the court. But state-funded Korail could go bankrupt if it loses its investment in the bid to transform its former train storage lot into a multifunctional business district of shopping malls, hotels and apartment complexes. There needs to be a re-examination of whether the project should be entirely scrapped or scaled down for incremental development of businesses that can be saved.

But the development should not be bailed out with public funds or involvement from public entities, as some recommend. It could set a very negative and wasteful precedent because other money-losing real estate development projects led by local governments and private companies could also demand similar bailouts. Asset-backed commercial papers and construction project loans that mature by the end of this year total 27 trillion won.

But something still must be done to prevent a catastrophic mess stemming from the collapse of this multibillion-dollar project. The Ministry of Land, Transport and Maritime Affairs, Seoul City and Korail should try to come up with a feasible and practical solution. The project should stand as a lesson for other ambitious and reckless urban development plans.

Local governments and politicians should wake up from their fantasies about pork-barrel projects. Real estate properties generate foam and the bubbles always burst. The fizzling-out can be very messy. The Yongsan project should be the last real estate bubble to burst.