KEPCO land buy may prove losing venture

This July 17 file photo shows an aerial view of KEPCO’s headquarters in Samseong-dong, Gangnam-gu, southern Seoul. Hyundai Motor Group and Samsung Group have expressed interest in acquiring the land. / Korea Times

By Park Jin-hai

Whoever obtains ownership of a prime tract of land to be vacated by the Korea Electric Power Corp. in southern Seoul is destined to incur losses of about 2 trillion won, according to a consulting firm quoted by Yonhap News Agency.

Total development costs for the land are estimated at around 10 trillion won. Potential revenue from rent and other means is projected at 8 trillion won after new owners purchase the land. This would create the estimated shortfall of approximately 2 trillion won

The 79,342 square meters of land in Samseong-dong, owned by the state-owned electricity provider, will attract a minimum bidding price of 3.3 trillion won, its survey said, adding that more than 10 trillion won will be needed over 10 years to finance development.

In order to change the land’s status from residential to commercial, the final bidder needs to register the area as a commercial area.

Plus, since it is a state property, the new owners will also need to donate 40 percent of land to Seoul city in return for favors such as relaxed regulation on the building-to-land ratio, floor area ratio and height of buildings.

It would entail another 1.3 trillion won in extra expenses, according to Yonhap.

The list also includes construction fees of 3 trillion won and 2 trillion won for taxes and financial expenses, the total tab for development will go over 9.6 trillion won.

“During the bidding process, its price is likely to go further up, pushing up its development costs hovering at over 10 trillion won,” the consulting firm said. Yonhap didn’t identify the name of the firm, it said, because of the sensitivity of the issue.

In contrast, the revenue from the post-development property value will not exceed 8 trillion won, possibly meaning it could be a money-losing deal.

Even when the average market price for the building spaces is calculated to rise 35 to 45 percent from the current rate, the bidder will be able to recoup 7.8 trillion won to the maximum.

Hyundai announced that it will enter the bid, unveiling blueprint for building global headquarters, a theme park, a convention center and other facilities for the public.

Samsung, Chinese property developer Greenland Group and U.S. casino and resort developer Las Vegas Sands have expressed interest in the property.

KEPCO said that it will accept bids by Sept. 17 and the bidder submitting the highest offer will be selected as the winner.