Some tall dreams are about to burst

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Some tall dreams are about to burst

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From left: Drawings of Lotte World Tower, Yongsan Landmark Building, Seoul Light Tower and the Global Business Center. Of nine skyscraper construction projects, only the 123-floor Lotte World Tower, which is to be built in Sincheon-dong, southern Seoul, is currently under construction. [JoongAng Ilbo]

Is Korea being haunted by the curse of the skyscrapers?

The Yongsan International Business District development project is near bankruptcy and other large construction projects in Busan, Incheon, Seongnam and Cheonan are also facing red lights, adding to the nation’s real estate woes.

According to data from the Ministry of Land, Transport and Maritime Affairs, 28 construction projects are estimated to cost 1 trillion ($900.2 million) won or more each, but only a handful are in good shape.

In particular, eight of nine projects, including a skyscraper with at least 100 floors, are facing dead ends. Just like glass and steel towers of Babel, dreams of reaching into the sky are turning to nightmares, leaving scars for residents and construction companies alike.

Grass is growing on the site of the planned Seoul Light Tower in front of the Park Chung Hee Presidential Library and Museum in Sangam-dong, western Seoul.

Construction of the world’s second-tallest building with 133 floors, was started in 2008 by a private company, but halted last June. Originally, 80 percent of the building was to be office space and when the project manager tried to add more residential space, Seoul City Government opposed the move.

The Global Business Center project is almost vaporized, as well. The 2 trillion won project, which Hyundai Motor Group tried to build in Seongsu-dong, eastern Seoul, has been in limbo since land-donation negotiations between Seoul city government and the automotive group fell apart.

Industry observers pointed out that these projects faltered as real estate prices fell after the 2008 global financial crisis. According to government data, the return on investment for construction projects was 5.55 percent last year, 1.42 percentage points less than in 2011.

“Big buildings were added in the Gwanghwamun and Yeouido areas recently and that led to a surge in office vacancies,” said Jang Jin-taek of Proper Tree, a real estate consulting firm. “Not only is it hard to find a customer, but the decline of leasing fees is also denting the profitability of projects.”

The cost of building a skyscraper also can be a huge burden.

“It depends on how you build the building, but these tall skyscrapers usually cost three or four times the cost of 20- to 30-floor buildings,” said Shin Dong-hyuk at Daewoo Engineering and Construction’s Building Works Division. “Because the cost is so high, it is difficult to find profitability in a 100-story building.”

In addition, experts said that complicated business structures with many stakeholders can be an impediment to the smooth operation of big projects.

“The reason why the Lotte World Tower construction project is cruising amid this sluggish economy is that it is managed by a single control tower called Lotte Group,” said a high-ranking construction firm official.

Experts point out that another frequent cause of trouble is the business plans for skyscrapers, which usually contain commercial facilities on lower floors, apartments on middle floors and business offices on upper floors.

“Since high-story buildings are so expensive to build and operate, they need to generate large rental income, so there has to be differentiated tenants, like using a financial center or company headquarters,” said Shim Gyo-eon a real estate studies professor at Konkuk University. “But these developers just entered into projects without any special content plan, believing that real estate market would somehow solve it.”

While stalled or abandoned projects are damaging for stakeholders, a bigger fear is the effect on the real estate market at large.

“With a dream of being a ‘Northeast Asia’s Hub,’ the price of houses and land near Yongsan International Business District Project rose sharply,” said Lee Nam-soo, a real estate team manager at Shinhan Bank. “But if the project gets in trouble, the real estate bubble could burst.”

Experts say the outlook for the real estate market is not bright, but developers first must make sure their projects will be profitable. They also recommend the creation of a legal entity to manage mega projects in a more formal and structured way because successful skyscrapers can be tourist attractions and in the public interest.

“Investors should all yield a small part of their interest and find a solution to increase the profitability of the project,” said Doo Seong-kyu, a director at Construction and Economy Research Institute of Korea.


By Hwang Jeong-il, Kwon Young-eun [kjoo@joongang.co.kr]

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