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| A man holding an umbrella looks out at Seoul's skyline from Mount Nam, in this August 2022 photo. Yonhap |
By Lee Yeon-woo
For many Koreans, real estate represents more than a place to live. For decades, it has yielded remarkable returns for investors, fostering the belief that prices will continue to climb as long as others keep investing in property. By the end of 2021, real estate accounted for 64.4 percent of assets owned by Korean households.
This blind faith has recently created various social problems, including fraud, ballooning household debt and a rising default rate for real estate project financing (PF) loans.
While the inherent risks of profits and losses lie with the involved parties, at the heart of these challenges is a discernible problematic structure within the industry.
"Equity capital required for development projects is very low in Korea ― typically between 5 and 10 percent of equity capital to sales revenue. This structure facilitates a massive supply of real estate. This was the gateway for many firms to enter the real estate industry during Korea's booming economy," said Kim Min-seok, a local real estate developer at Cube Property, in a recent interview with The Korea Times.
"It is concerning that developers, responsible for projects, operate with less than 10 percent of the required capital and offload the potential burden of losses onto society. In nations like the U.S. or Japan, developers must secure at least 20 to 30 percent of a project's total cost to be eligible for PF loans, reflecting much stricter capital prerequisites," Kim added.
He also cited challenges like the rising cost of raw materials and the public's preference leaning heavily towards major construction firms, which adversely affects small and mid-sized construction companies.
"Addressing one issue alone won't better the situation. The challenges in our industry are interconnected, almost like a chain, so no single person can resolve them independently," Kim said.
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| Kim Min-seok, a real estate developer at Cube Property / Courtesy of Kim Min-seok |
Nevertheless, the era of soaring real estate prices is likely to end, bringing significant changes, he said.
"In times of economic and population growth, all properties ― from new apartments in Seoul to old villas, enjoyed a price surge in a thriving real estate market. However, in the coming years, we'll see a growing divide between properties or cities that can transparently showcase their intrinsic value, uniqueness and pricing, and those that remain vague in these areas," Kim noted.
With extensive experience as a developer and insight from his academic background in urban planning, Kim recently published a book titled, "The Politics of Redevelopment: Inside the Real Estate Development Wars."
The book cautions that Seoul's ambition to evolve into an envisioned "future city" faces challenges if Korea continues to rely on its past urban planning methodologies.
To catalyze this transformation, Kim emphasizes the importance of a human-centric approach.
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| Cover of the book, "The Politics of Redevelopment: Inside the Real Estate Development Wars" / Courtesy of Threechairs Publishing Company |
"Like numerous cities globally, Seoul aspires to ascend as a leading global city. Key initiatives towards this vision include the Seoul Ring under the Great Han River project, a comprehensive redevelopment strategy for apartments in Yeouido, and innovative urban air connectivity between Gimpo Airport and Yeouido via drone taxis," Kim said.
"Regardless of how exemplary, captivating or impeccable a plan might be, if it doesn't address conflicts inherent in its formulation and fails to convince the local community of its value and relevance, it merely becomes a blueprint trapped within a frame," Kim added.
"After all, a city is a space meant for people, a living place. It shouldn't be a place for money."
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