While large-scale redevelopment projects in areas like Yeouido and Seongsu attract construction companies, 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 about 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 reconstruction projects can relatively easily secure additional relocation funds by leveraging the credit and financial strength of major construction firms. In contrast, small-scale redevelopment projects, primarily involving mid-sized and small construction companies, face challenges in securing 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, completed its management plan approval but has faced 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 HUG guarantee products, increasing the financial burden on members.
Small-scale projects in the outskirts of the metropolitan area are under even greater pressure. 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.
A representative from the Galsan-dong 183-1 association 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 won. We received a response from Isu Construction that additional relocation fund support is not possible, increasing the burden on members." They added, "If sales do not go smoothly and we have to offer discounted sales, it is likely to 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 contracted 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 less capacity to absorb increased financial costs.
Kim Deok-rye, head of the Housing Research Division at the Korea Housing Industry Institute, stated, "Relocation loan restrictions affect both large-scale reconstruction and small-scale redevelopment projects, but the difference arises in the ability to secure additional relocation funds. Large construction firms can secure additional financing based on their financial strength and creditworthiness, but mid-sized and small construction firms handling small-scale redevelopment projects lack that capacity, leading to higher financial costs."
He added, "As financial costs rise, both project costs and sale prices increase, but small-scale projects in the outskirts often struggle to find a market for these increases. 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.
Copyright ⓒ Aju Press All rights reserved.