In the heart of Gangnam, Seoul, the developer behind the high-end officetel 'Nonhyeon Arts' has raised suspicions of fraud while selling units. The developer's affiliated company is now facing complaints in Yeouido as well, due to unsold units leading to construction halts and unilateral changes to contracts. Despite being scheduled for completion in May next year, construction has only progressed on the lower floors, making it difficult to meet the anticipated completion date. As unit buyers demanded the cancellation of contracts with the trust company they contracted with, the developer sparked controversy by insisting that they pay the midterm payment that was supposedly offered as an interest-free loan.
According to a report by Chosun Biz on the 11th, construction of the high-end officetel 'Yeouido Perni' located at 8 Gukhoe-daero 70-gil, Yeongdeungpo-gu, Seoul, is currently on hold. This officetel, situated across from the National Assembly Building, began sales in February 2023. The developer, Prime Industrial Development, promoted interest-free loans for 50% of the midterm payments, luxurious interiors, and high-end finishing materials. Ownership currently rests with Korea Real Estate Trust after signing a borrowed-type land trust contract. The project financing was executed via direct loans from Daol Investment & Securities.
However, real estate industry insiders believe that the officetel project is essentially impossible to proceed according to schedule. A visit on the 25th of last month confirmed that basement construction is ongoing. The expected completion date for this officetel is between May to July next year. Raising a 13-story building in just 7 to 9 months is almost impossible. Moreover, the contractor, IMG Construction, is currently facing a liquidity crisis and has lost its construction capabilities.
A representative from the trust company, Korea Investment Real Estate Trust, noted, 'We have received a notice from the relevant district office regarding the suspension of construction related to the construction company' and added, '(Regarding unsold units) we are taking follow-up actions based on existing contract terms and responding accordingly.'
The occupancy rate of Yeouido Perni is also presumed to be quite low. According to the audit report of Prime Industrial Development published on the Financial Supervisory Service's electronic disclosure, as of the end of last year, about two years after its launch, Yeouido Perni's progress rate was 10.45%, and the occupancy rate was 19.85%. The auditor mentioned 'significant uncertainty related to continued corporations' in the report. It has been reported that the company continued promotional activities for sales until this year and attempted to deceive contract signings regarding the occupancy rate.
Unit buyers have begun demanding contract cancellations. Most of them are early 2023 contractors. They have filed a lawsuit for 'damages for unlawful acts' against Hong, the general contractor, and his acquaintance, Yoo, along with demanding contract cancellations from the trust company. If the construction is not completed within three months after the scheduled occupancy date, grounds for contract termination automatically arise. The unit buyers are prioritizing contract cancellations as construction halts make it effectively impossible to occupy on the planned date.
Prime Industrial Development demanded that the unit buyers, who filed lawsuits on the 18th of last month, pay the midterm payment through a certified mail. The certified mail stated that 'there is no explanation for any reasonable cause or unavoidable circumstances, yet they are persistently refusing their payment obligations (midterm payment) as a unit buyer, which constitutes a default on the contract terms signed with the sender (Prime Industrial Development).' As of June, Prime Industrial Development had informed buyers through notices that 'loan reviews are expected to proceed soon due to sufficient consultations with financial institutions.' Their stance has completely reversed in just five months.
A legal representative of Prime Industrial Development stated, 'The most important thing is the sales contract,' adding that '(Regarding the interest-free loan for the midterm payment) there has never been any mention of that in the contract.' However, upon reviewing the contract, it is noted that 'the interest on the midterm payment for this product is interest-free.'
Prime Industrial Development is a company associated with Nonhyeon SH, the developer suspected of fraud during the sale of 'Nonhyeon Arts.' Prime Partners is the major shareholder of both Prime Industrial Development and Nonhyeon SH. They provided collateral and guarantees during the business promotion process. Prime Industrial Development borrowed 57.4 billion won under the guise of project financing from institutions including Seoul Agricultural Saemaeul Credit Union, Shinhan Capital, and Korea Investment Real Estate Trust, with Nonhyeon SH offering priority rights related to ongoing third-party project financing as collateral, while Prime Partners provided a joint guarantee.
A representative from Daol Investment & Securities, which provided direct loans for the Yeouido Perni project, commented, 'It seems that neither the sales nor the construction is progressing as planned,' adding, 'The completion is slated for May, so we plan to wait until then.'
Lawyer Son Moo-hyun from Sehyun Law Firm stated, 'Victims continue to emerge related to the high-end officetel sold during the real estate boom,' and noted that 'unlike with apartments, officetel buyers have no recourse when a project fails, which raises issues of fairness.'