The government is pursuing a plan to convert vacant knowledge industry centers into residential spaces to increase housing supply, making the determination of purchase prices a key issue. The prices vary significantly due to discounted sales, urgent sales, and auction results, and additional construction costs are required for the conversion. Experts argue that a price assessment reflecting current market value, along with costs for changing usage and remodeling, is necessary for actual supply to materialize.
According to a report by Aju Economy on September 15, the Korea Land and Housing Corporation (LH) plans to calculate prices for its non-residential remodeling rental project by selecting one appraisal firm each from LH and the Korea Association of Property Appraisers. LH stated, “We plan to determine the purchase price based on the arithmetic average of the two appraisals.”
However, the price variations for knowledge industry centers are significant. Prices differ even within the same area based on location, year of completion, number of floors, and the ratio of supporting facilities, with discounted sales and auction prices forming simultaneously. It is crucial to identify which cases accurately reflect market value.
According to Knowledge Industry Center 114, the number of court auctions for knowledge industry centers in the metropolitan area increased by 24% in the second quarter of this year, reaching 1,530 cases, up from 1,233 in the previous quarter. Compared to 594 cases during the same period last year, this represents a 2.6-fold increase. The auction success rate was 51.5%, the lowest since 2020.
Nam Kyung-jin, head of the Korea Association of Property Appraisers, noted, “Knowledge industry centers have the characteristics of collective buildings, so they are likely to be appraised using the comparative sales method. We need to comprehensively review transaction cases, auction results, and market fluctuations at the time of the assessment to select the cases that best reflect market value.”
He added, “Given the large volume of knowledge industry centers and the high market volatility, it is essential to closely examine changes in market conditions relative to the sale price, and the specific evaluation methods may vary depending on individual cases.”
Post-Purchase Remodeling Costs and Usage Change Challenges
The criteria for comparing prices also vary depending on the business model. LH is using a direct purchase method for acquiring buildings and changing their usage and remodeling, while a purchase agreement method allows LH to buy buildings remodeled by private entities. The purchase agreement method appraises the building based on its condition after remodeling and changing usage, making simple comparisons with existing transaction prices difficult.
The costs required for conversion to residential use also affect the project's viability. Even if existing buildings are acquired at a low price, high costs for altering internal structures and equipping residential facilities can diminish the price advantage.
Kang Eun-hyun, head of the Auction Research Institute, stated, “Knowledge industry centers are experiencing price weakness due to economic downturns and oversupply, and converting them to residential use incurs additional construction costs for underfloor heating, bathrooms, and kitchens.” He emphasized that both current transaction prices and conversion costs to residential use must be considered.
Professor Yoo Seon-jong of Konkuk University added, “Knowledge industry centers are not originally designed as residential spaces, so significant costs will be incurred during the usage change and remodeling process. It is essential to consider not only the acquisition cost but also the additional capital expenditures required to convert them into residential spaces.”
The layout is also a variable. The process of converting spaces designed for business and production facilities into residential use may reduce their utility. Professor Yoo explained, “Knowledge industry centers may have layouts that are elongated, making them inefficient for residential use. It may be worth considering combining two or three units to create an officetel.”
Even if the price and construction cost conditions are met, safety and facility requirements for residential use must be satisfied. An LH official stated, “We will closely review the legal changes in usage to ensure compliance with safety standards, including fire and evacuation criteria, as well as the requirements necessary for residential use.”
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.