 A designer’s concept of the Yongsan Global Business District, released by the Seoul city government. |
KORAIL sends warning letter to Lee Kun-hee on overdue payment
By Bae Ji-sook
Staff reporter
Seoul's ambitious plan to turn a 530,000 square-meter site around Yongsan Station into a global business district is about to fall apart, a victim of the sluggish property market.
The real estate owner and the biggest investor KORAIL has threatened to cancel deals with builders if they do not submit a detailed plan to honor overdue payments for use of the real estate by next Friday.
Builders are having difficulty making leasing payments as financial firms have turned negative on projecting financing following a prolonged slump in the construction industry.
KORAIL said it sent an official letter Monday to Lee Kun-hee, the head of the Samsung Group whose construction unit is leading a consortium of 17 builders engaged in the project.
This is the first time the public railway company has sent such a letter to the business tycoon, not the company itself, an apparent move to put pressure on Samsung. The letter reportedly irritated Samsung Group.
The Yongsan developers' consortium, dubbed "Dream Hub" consists of Samsung Corp. and 16 other construction companies as well as 13 other investors, including KORAIL, KB and the National Pension Service.
Builders were to pay a total of 8 trillion won to KORAIL for the use of its real estate, where an old station warehouse was located.
However, the builders have failed to honor the payment of the 701 billion won first installment due last year.
The daily interest arising from the delay is about 180 million won and the total amount of installment payments amount to 4.7 trillion won.
The builders have requested KORAIL to put back the payment date till completion; exempt interest; and ease other building restrictions.
However, KORAIL refused, and instead demanded the 17 companies to come up with payment guarantees.
KORAIL officials said they have relaxed repayment terms several times, but builders are not delivering on their promises.
"KORAIL is a public corporation and the breach of contract means that they are fooling the citizens," it stated.
Construction firms said they might not be able to meet the terms required since the real estate market has tanked over the past couple of years and financing has become ever more difficult. "Since the project is the largest in history for a government-civilian development project, it is a huge risk for the developers, too," a representative from a construction firm said.
With KORAIL threatening to halt the project, the rosy picture of cramming Yongsan with skyscrapers housing hotels, shopping centers, leisure facilities and other amenities now seems in limbo. The construction was supposed to commence in 2012.
Analysts say a cancellation of the project will be a massive blow not only to the real estate market but society as a whole. They note that fewer people will be prepared to make investments, further damaging the market.
The builders have already paid 1 trillion won in non-refundable guarantees.
Some real estate experts say the Seoul Metropolitan Government needs to share responsibility.
The rather "humble" project of redeveloping the KORAIL warehouse grew into a 30 trillion won giant when the city administration pushed to link the Han River Renaissance project to it.
The river renaissance is the major pet project of Seoul Mayor Oh Se-hoon to fill the river's banks with skyscrapers and state-of-the-art leisure facilities among others.
Some pointed to civic movements opposing the projects. "Oh may face further resistance from local residents who feel they have been thrown off of their home ground," a civic group representative said.
Last year, five residents who were being evicted from the area as part of the redevelopment project died, along with a police officer during violent clashes with riot police.
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