Mayor's campaign promise leads to spike in real estate

Economy

Published: 19 Apr. 2021, 17:16

Mayor's campaign promise leads to spike in real estate

View of Jamsil Jugong 5 Danji apartment complex in Songpa, Seoul, on Sunday. Prices of the apartment complex has driven up the overall prices of the neighborhood as expectation of reconstruction moving forward have gone up. [YONHAP]

Prices of apartment in Seoul have risen sharply, especially in the Gangnam area, as people expect more permissions for redevelopment of apartment complexes after the election of a new mayor.

According to the Korea Real Estate Board on Monday, apartment prices in Seoul rose 1.12 percent as of last week compared to the beginning of this year.

Songpa district, which is home to the Jamsil Jugong 5 Danji complex, saw the sharpest increase of 1.77 percent. Jamsil 5 Danji, which was built in 1977, has been applying for permission to redevelop for a decade.

The Gangnam region refers to three districts south of the Han River: Gangnam, Seocho and Songpa

A 76.5 square-meter apartment in the complex sold on March 3 for 2.43 billion won ($2.18 million), which was 137 million won more or 6 percent higher than the sale of the same-size apartment on Jan. 8.

The asking price for the same-size apartment is now between 2.5 billion won and 2.7 billion won.

Prices in Gangnam and Nowon districts rose 1.42 percent, while those in Seocho rose 1.4 percent. Prices in Mapo were up 1.38 percent and in Yangcheon 1.31 percent.

All of these areas have major apartment complexes that are ripe for redevelopment.

A 245.2 square-meter apartment in Apgujeong, which was built between 1976 and 1987 sold for 8 billion won on April 5. Six months ago, the same size apartment sold for 6.7 billion won, representing a 19 percent increase.

Currently the asking price for apartments of that size in Apgujeon is around 8.5 billion won.

Seoul’s new mayor Oh Se-hoon, who won a by-election on April 7, promised to easing regulations on redevelopment.

Oh argued that the best solution to high apartment prices is to increase supply, including through redevelopment.

Oh promised to allow redeveloped apartment buildings to be built to 50 floors, compared to the current ceiling of 35 floors.

Other regulations that could be eased is a requirement that owners of a redeveloped apartment to live in the new apartment for two years as well as safety measures and limits on pre-construction sale prices of new units.

Oh said that through redevelopment and rezoning, 185,000 units will come onto the market in the next five years.

However, the central government has warned Seoul's new mayor not to go too far. Finance Minister Hong Nam-ki said on April 8 that real estate policy is not an issue that a single local government can decide.

In a recent interview with local media, Oh said while he will act swiftly, he would be very careful not to do anything that leads to a spike in real estate prices.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]