In overheated Gangnam, construction goes on

Preconstruction sales of apartments in the four major districts in Gangnam - Gangnam District, Seocho District and Songpa District, all in southern Seoul, and Gangdong District, eastern Seoul - as well as Gwacheon in Gyeonggi, are expected to remain a central focus of the local real estate market.

Despite the government’s tightening control of preconstruction sales to curb the overheating of the local market, these areas are likely to continue to contribute to the supply of newly constructed apartments. The preconstruction continues despite attempts to control rising household debt.

“Even within these [popular] neighborhoods, the areas that will be proceeding with preconstruction sales are exceptionally attractive areas that will draw huge [investment] interest,” said Park Sang-eon, CEO of U&R Consulting, a real estate consulting firm.

According to real estate information provider Budongsan 114, this year 30,751 apartments from 29 complexes in the four districts in Gangnam as well as Gwacheon are included in preconstruction sales. That’s the largest supply of apartments from these regions since the company began compiling related data in 2000.

Most of the apartments that will be sold in the market are reconstructed.

Many of the apartment owners have been pushing for the reconstruction of their apartments as the temporary suspension of the regulations that allow the government to collect excessive profits that the apartment owners made from the reconstruction of the apartment end this year.

This regulation, which was first adopted during the Roh Moo-hyun administration in 2006, was targeted to cool the overheated reconstruction market, particularly in the four Gangnam districts that were driving up the overall real estate market.

Under the regulations, owners of the reconstructed apartments have to pay as much as 50 percent of the excess profit that is incurred when the value of the apartment increases more than 30 million won ($26,380) after reconstruction is completed.

The regulation was suspended in 2013 as the local real estate market struggled.

Likely the competition for higher quality apartments will be fierce among those that will be undergoing reconstruction as major construction firms will be participating.

The first will be Hyundai Engineering, an affiliate of Hyundai Motor Group. The construction company has already started sales on an apartment complex that will be built in Amsa-dong in Gangdong. Among the apartment units, 20 percent are expected to face the Han River, a feature likely to attract homebuyers.

GS E&C’s apartment complex Central Xi in Jamwon-dong, Seocho, is beside the Han River.

Some of the apartment complexes have a large number of units.

The Gaepo Siyoung apartment that Samsung C&T will be handling in Gaepo-dong, Gangnam, will be rebuilding 2,200 units while the Godeok 3 Danji reconstructed apartments in Gangdong will be supplying 4,000 units.

In Gwacheon, the first preconstruction sales are expected to be held in August followed by another apartment complex in November and several in December.

All of these reconstruction apartments are located near subway stations including the No.4 line Gwacheon station as well as the Government Complex Gwacheon Station, also on the No.4 line.

The Gwacheon Knowledge Information Town, which will be built on government-owned land in Galhyeon-dong and Moonwon-dong, will start preconstruction sales in November.

“These are neighborhoods that have been under tougher government regulations since the government announced the Nov. 3 real estate measures, but its popularity continues to grow,” said Ham Young-jin, head of Budongsan 114 research center. “The preconstruction sales of these areas are likely to do well.”

The government tightened conditions in applying for the bidding of preconstruction sales of the four major Gangnam districts and Gwacheon when it announced its measures to cool the heated real estate market in November.

The success of these sales, however, will depend on the prices. These apartments not only are brand-new but they are all located in areas of huge demand.

The only hurdle is government approval based on the prices of the preconstruction apartments as these areas are branded by the government as neighborhoods under intense monitoring.

If the preconstruction sales prices exceed the average value of the housing units in the surrounding areas, the Korea Housing and Urban Guarantee Corporation may not guarantee the reconstruction, a necessary process in gaining government approval.

Some of the apartments are seeing adjustments in their prices in order to get approval.

The preconstruction sales price of a Lotte Castle in Godeok-dong, Gangdong, which will be on the market next month, is expected to be worth 22 million won per 3.3 square meters (35.5 feet), which is slightly lower than then 23.4 million won in the same area offered by the neighboring Godeok Gracium in October.

But in doing so, the lowered price will likely attract buyers who are more interested in profiting when selling the apartment for a higher price. This in turn will likely limit the buyers who are hoping to buy an apartment that they could live in by raising the competition in winning the chance to buy the apartment.

Some experts have raised concerns about the oversupply of apartments, especially in Gangdong and Gwacheon, that could end up failing to completely sell out the newly supplied apartments.

“The three Gangnam districts [Gangnam, Seocho and Songpa] won’t have any trouble selling out because there’s a huge demand but in the case of Gangdong and Gwacheon, where each are expected to provide 4,000 units, the market might not have the ability to completely consume them,” said Park Hap-soo, senior real estate analyst at KB Kookmin Bank.

BY HWANG EUI-YOUNG [lee.hojeong@joongang.co.kr]