Last year, 58th ranked Shin Dong-A Construction applied for court receivership, which is expected to affect the buyers of apartments developed and constructed by Shin Dong-A Construction. Due to the company's deterioration, it is anticipated that if construction is delayed for more than three months, buyers will experience canceled contracts or delays in moving in.
According to the Housing and Urban Guarantee Corporation (HUG) on the 7th, among the establishments that Shin Dong-A Construction is participating in as either a developer or a contractor, there are a total of seven complexes and 2,899 units guaranteed by HUG, with a guaranteed amount of 1.1695 trillion won.
Among these, the 'Pyeongtaek Goduk Internationalization Planning District A-50 Block (Mirado Famille)' and the 'Incheon Geomdan District AA32 Block apartment development project' are two sites where Shin Dong-A Construction is co-developing with Moa General Construction and Kyeryong Construction Industry.
The remaining five establishments, including ▲ e-Pyeonghan City Wondang private housing ▲ Dongtan A106 Uyourim Famille ▲ Dongtan A107 Summa Desiane ▲ Gyeonggi Uijeongbu Station Shin Dong-A Famille 2 Block 1 ▲ Gyeonggi Uijeongbu Station Famille 2, are places where Shin Dong-A Construction is responsible for simple contracted construction.
The seven establishments of Shin Dong-A Construction are not currently leading to a guarantee accident due to the presence of co-developers or receiving sales guarantees from HUG.
An HUG official noted, "In the case of establishments such as Pyeongtaek Goduk New Town and Incheon Geomdan New Town, since there are co-developers, other developers will look for a substitute contractor to replace Shin Dong-A Construction through negotiations, entering normalization of the project." However, the official also stated, "If business normalization does not proceed smoothly and a guarantee accident occurs, HUG will step in to refund or fulfill the contract obligations to the buyers."
According to HUG regulations, if a primary debtor defaults, goes bankrupt, or abandons the project, and if construction is halted for more than three months due to such events, or if the completion rate exceeds 75% and there is a delay of more than six months without justifiable reason, it is deemed a guarantee accident.
In the event of a guarantee accident, HUG has prepared two measures to protect the buyers. It is common to grant buyers the right to choose between a refund or fulfillment of the contract. For buyers who wish to cancel the contract, there is a refund process for the contract deposit or interim payment made.
The other option is for HUG to undertake a substitution payment on behalf of Shin Dong-A Construction, take over the establishment, and find an alternative contractor to complete the project. While the sale contract remains in effect, the move-in date may also be delayed because the business process is extended.
The project financing (PF) business that Shin Dong-A Construction is pursuing is limited, so even if it applies for court receivership, it is not expected to significantly affect the PF market conditions.
Currently, the only project financing (PF) establishments that Shin Dong-A Construction is pursuing alone, not as part of a consortium, are two blocks of the complex development project at Uijeongbu Station in Gyeonggi Province. As of Dec. 31, 2023, among a total of 13 establishments, 10 were solo projects, which has now decreased to two.
In order to secure funding for the complex development project at 127-4 Uijeongbu-dong, Uijeongbu City, Shin Dong-A Construction signed a responsible completion contract in 2021 and received PF loans of 42.19 billion won and 24.61 billion won from Seoul Livestock and Saemaeul Geumgo. They set up Hana Asset Trust as a trustee and concluded a managed land trust contract.
Both blocks of the Uijeongbu complex development project have been sold, but it is reported that there is currently unsold inventory remaining. However, as they are also covered by HUG's sales guarantee and Hana Asset Trust is the primary debtor, it is not expected that Shin Dong-A Construction's application for court receivership will immediately trigger a guarantee accident. The development industry believes that Hana Asset Trust can find a new operator to normalize the project, so the situation is not immediately perilous.
An official from the development industry analyzed, "Although Shin Dong-A Construction applied for court receivership, most of the establishments are either co-developments or backed by HUG's guarantee. The main creditors or co-developers will seek to find a substitute developer or contractor to complete the sales and construction and recover their investments."
A Shin Dong-A Construction official said, "As the collection of construction receivables, lending receivables, and liquidity shortages due to the real estate market downturn has worsened, we have applied for court receivership."