As Jamsil Jugong Complex 5, a landmark rebuilding project in Seoul's Songpa District, plans to begin moving out residents next year, its offer of up to 2 billion won in relocation financing has emerged as a wild card for the Gangnam area's market for jeonse, the Korean lease system in which tenants pay a large lump-sum deposit instead of monthly rent. More than half of the complex's 3,930 units are occupied by association members who own them, and analysts say that if those households secure large relocation loans and stay in the Jamsil area, jeonse supply could tighten not only in Jamsil but across Songpa District and the wider southeastern Seoul area.
The Jamsil Jugong Complex 5 reconstruction association recently informed its members of the financing plan, according to redevelopment industry sources on the 21st. A member whose property is valued at 4 billion won under the pre-rebuilding appraisal and who moves into a jeonse home requiring a 2 billion won deposit could cover the full deposit by combining a basic relocation loan of 600 million won with an additional 1.4 billion won in loans backed by the construction company. The smaller the basic loan limit, the more can be raised through the additional loan.
Beyond the basic relocation loan, which is capped at 600 million won under the government's mortgage limits, additional loans are provided up to 100% of the loan-to-value ratio on the appraised value of the existing property, with the ceiling set at the jeonse deposit of the home the member actually moves into. Units measuring 84 square meters are currently appraised at around 4 billion won. Interest rates on the additional loans, however, run more than 1 percentage point higher than on the basic loans.
About 2,100 of the complex's 3,930 units are occupied by association members who own them. The association aims to begin relocation after the third quarter of next year. The funds those members can raise are enough to choose even high-priced jeonse homes in Jamsil. Asking jeonse prices for 84-square-meter units currently run in the 1.8 billion won range at Jamsil Lourel, 1.4 billion to 1.6 billion won at Jamsil Raemian IPark, and 1.3 billion to 1.5 billion won at the "Elite" complexes — Els, Recents and Trizium. Based on the 2 billion won example presented by the association, members could move into new or relatively new buildings in Jamsil without leaving their current neighborhood.
But the supply of jeonse homes in the Jamsil area available to absorb them is severely out of balance with demand. As of the 19th of this month, seven major Jamsil complexes — Jamsil Lourel, Jamsil Raemian IPark, Jamsil Els, Recents, Trizium, Parkrio and Lake Palace — had a combined 528 actual jeonse listings, according to an analysis by property data firm Kokjip. Of those, only 310 were units of about 84 square meters, the size in greatest demand. The figures were compiled from listings registered on Naver Real Estate after removing duplicate advertisements for the same address.
More jeonse and monthly-rent homes may come onto the market in the second half of next year when relocation gets underway in earnest, but conditions will be difficult because no new complexes are set for occupancy and relocation demand from other redevelopment projects in Songpa District is expected to grow. The head of a real estate brokerage near Jamsil Jugong Complex 5 said some households will pay a premium to stay in nearby complexes because of school districts or their daily routines, but older residents may add a little of their own money to the basic relocation loan and move to the outskirts of Seoul or to Gyeonggi Province. "Where people move will depend on their financing costs, but there simply isn't enough inventory to absorb them," the broker added.
Major construction companies have recently been offering additional relocation loans at 100% to 150% of the loan-to-value ratio on large redevelopment projects in the Gangnam area, raising concerns that the shortage of jeonse and monthly-rent listings could deepen further next year. Even under lending restrictions, guarantees from construction companies allow association members to raise larger sums for relocation. An official in the redevelopment industry said associations put relocation financing terms at the top of their demands, so builders often offer generous terms of up to 150% of the loan-to-value ratio.
Large rebuilding projects are indeed lined up from the first half of next year onward, including the 4,424-unit Eunma apartment complex in Daechi and the 1,960-unit Gaepo Jugong complexes 6 and 7. If jeonse demand backed by large relocation loans spreads across the Gangnam area, the effects could cascade across all of Seoul and into the wider metropolitan area. Yang Ji-young, an expert adviser at Shinhan Premier Pathfinder, said the problem is not that households cannot move because they lack relocation funds but whether there is enough inventory left to absorb that demand. "In the past, relocation demand arose in a limited number of areas, but now demand in neighboring areas is being pushed out, and it is likely to reach outlying cities in a pattern resembling gentrification," she said.
