While large-scale redevelopment projects in areas like Yeouido and Seongsu attract significant interest from construction firms, small-scale redevelopment initiatives are struggling throughout the entire process, from relocation to sales. The restrictions on relocation loans are delaying project launches, and concerns over poor sales are further deteriorating project viability.
According to the redevelopment industry on July 20, small-scale reconstruction and street housing redevelopment projects are more significantly affected by relocation loan restrictions than larger projects. The basic relocation loan is determined based on the assessed value of the property, but any additional relocation funds must be secured based on the contractor's creditworthiness and financial capacity.
Large-scale redevelopments can more easily secure additional relocation funds by leveraging the credit and financial strength of major construction companies. In contrast, small-scale redevelopment projects, typically involving mid-sized and small construction firms, find it challenging to secure credit enhancements and additional funding. If additional relocation funds are not obtained, the relocation of members is delayed, which can push back demolition and construction schedules, increasing financial costs.
In Seoul, there are already cases where project timelines are being disrupted due to issues with securing relocation funds. The A Moa Town project in Myeonmok-dong, Jungnang-gu, has completed its management plan approval but is facing delays due to relocation loan issues. After DL Construction stepped in with a payment guarantee, the project resumed, but the interest rate for additional relocation funds is around 7.5%, higher than the HUG guarantee products, increasing the financial burden on members.
Small-scale projects on the outskirts of the metropolitan area face even greater challenges. A small-scale reconstruction project in Galsan-dong, Bupyeong-gu, Incheon, plans to rebuild 234 units after demolishing the existing 107 units, but the schedule for starting relocations has yet to be determined.
An official from a small-scale reconstruction association in Gyeyang-gu, Incheon, who requested anonymity, stated, "The assessed value of the property is between 150 million and 200 million won, so the basic relocation loan that members can receive is only about 90 million to 120 million won. We received a response from Isu Construction that additional relocation funding is difficult, which is increasing the burden on members." He added, "If sales do not go smoothly and we have to offer discounts, it is highly likely that this will lead to additional contributions from members."
Even after completing relocations and entering the construction phase, another variable remains: general sales. The Ojeong-dong Hyundai Housing and Street Housing Redevelopment Association in Bucheon has only secured contracts for three out of 16 units available for general sale. Industry experts attribute this to a combination of loan restrictions, a slowdown in local demand, and reduced investment interest.
Experts point out that the viability of small-scale redevelopment projects can quickly fluctuate based on financial procurement capabilities and sales performance. While large projects can utilize the credit enhancements and brand competitiveness of contractors, small-scale projects have limited capacity to absorb increased financial costs.
Kim Deok-rye, head of the Housing Research Institute at the Korea Housing Industry Institute, stated, "Relocation loan restrictions affect both large-scale redevelopment and small-scale projects, but the difference arises in the ability to secure additional relocation funds. Large construction companies can obtain additional financing based on their financial strength and creditworthiness, but mid-sized and small construction firms handling small-scale projects lack that capacity, leading to higher financial costs."
He continued, "As financial costs rise, both project costs and sale prices increase, but small-scale projects in outer areas often struggle to find acceptance in the market. If additional relocation funds cannot be secured, projects are delayed, and even if they are secured, the burden of costs continues to repeat the dilemma."
* This article has been translated by AI.
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