 Plans to build a massive high-tech information and finance hub in the area near the Yongsan station in downtown Seoul look to be stumbling, as the involved construction companies struggle to bear the land-related payments. / Korea Times |
By Kim Tong-hyung
Battered and bruised, Korea’s stumbling real-estate market breathes heavily on the ropes. Now, the possible collapse of a mega-development project in Seoul threatens to knock it out cold.
It appears that all hands are ready to bail on the ``Yongsan International Business Zone’’ project, a 31 trillion won ($27 billion) job that was to represent the country’s largest single property scheme ever.
The essence of the problem is that the disillusioned financial investors and construction companies, led by Samsung C&T, are failing to agree on how to cut the 8 trillion-won check for the land purchase among them.
The companies and KORAIL, the state-run rail operator that is the owner of the land near the Yongsan station in downtown Seoul, will need to find common ground by mid-September to prevent the project from being canned.
The derailment of the Yongsan development project will have a devastating effect and not least among the victims will be the many individuals who stretched themselves thin to buy homes and land in neighboring areas with the dreams of making a fortune.
``It is pretty much a conclusion that the Yongsan project will never be as profitable as originally thought. The risk should be divided among every party involved, and it would be unfair to put the burden only on builders in the form of additional construction loans,’’ said a Samsung C&T official.
The Yongsan international business hub, which was to be completed by 2016, had been touted as the heart of Seoul’s new urban landscape, built around a massive, 150-story skyscraper and a wealth of riverfront business and tourist venues, including a state-of-the-art dock for cruises.
The project also accounted for a crucial part of the Seoul Metropolitan Government’s ``Han River Renaissance’’ project, an ambitious development plan aimed at turning the grayish Korean capital into an attractive waterfront city.
When completed, the Yongsan business hub was to attract 140 million people every year, create up to 360,000 new jobs and generate 67 trillion won in production value, according to the old news releases.
Such glassy-eyed predictions seem rather absurd now when the Yongsan project is looking increasingly like a biblical disaster. When Samsung C&T and the 16 other construction companies committed to the project in 2007, the country’s real-estate market was at its peak.
However, the market has skidded sharply since then, suggesting that the increase of wealth in past years was largely an illusion, and the companies are no longer certain that the returns will ever justify an 8 trillion won splurge.
The Yongsan investors need 2 trillion won to fulfill their land-related payment through the end of next year, and KORAIL had demanded the construction companies to come up with the money through real-estate project-financing loans.
However, the builders balked at the demand, claiming they don’t have the room left to take on massive guaranteed loans and that financial investors should share the burden as well.
This had financial investors suggesting an alternate plan where the builders come up with 950 billion won and the rest of the money would be raised through a capital increase and loans based on KORAIL-provided collateral.
However, the builders rejected this as well, with Samsung claiming that the cost should be divided amongst each financial investor and construction company depending on the size of their stakes.
To finance the project, the Yongsan investors last year had issued 850 billion won worth of asset-backed securities (ABS) ― a common type of asset used as collateral ― and the first deadline for interest payment comes on Sept. 17. Should investors fail to agree on a way to handle the land-related payments by then, KORAIL will be forced to kill the Yongsan project.
``Samsung has been repeating their words over and over again. We are a company that runs on taxpayer money and there is no more room for us to compromise,’’ said Kim Heung-seong, a KORAIL spokesman.
The implosion of the Yongsan project would be a critical blow to KORAIL, which had accumulated more than in 4.5 trillion won debt from its bullet train business.
However, KORAIL could only blame its bubble-blinded past for the current turmoil in the Yongsan development project, as it had decided to introduce an auction for its land to get a better price for it.
The 8 trillion won written by Samsung C&T and its partners for the land dwarfed other bids by rivals, but was significantly more than the 5.8 billion won, which was believed the land’s proper value.
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