A site in Songjeong-dong, Haeundae District, Busan, designated for lifestyle accommodation facilities (saengsuk), has been put up for public auction. Songjeong-dong is a well-located area with good transportation, adjacent to Songjeong Beach and the East Busan Tourism Complex. Lifestyle accommodation facilities provide hotel-style amenities and services while allowing cooking, and are commonly called "residences."
It is land appraised at more than 40 billion won. The reason it was put up for a bulk public auction is that an event of default (EOD) occurred after the developer failed to pay interest on more than 30 billion won borrowed from the syndicate to build the saengsuk. The industry analyzes that the downturn in real estate in regional metropolitan cities, along with government restrictions prohibiting the use of saengsuk as residential, had an impact.
According to the maintenance industry and the financial investment industry on the 16th, a public auction is underway for the parcel intended for a saengsuk in Songjeong-dong, Haeundae District, Busan. The site at Songjeong-dong 297-83 and surrounding lots has a land area of 1,922.00 square meters and a total floor area of 22,604.37 square meters, and was to be built with 201 rooms, five underground floors, and 13 above-ground floors. The appraised value of the parcel is 42.297 billion won. Mugunghwa Trust is in charge of the auction. The loan claims held by the syndicate, including Daegu Chukhyup, are known to total 32 billion won.
A Mugunghwa Trust official said, "An event of default (EOD) occurred because the developer did not pay interest on the loan, and we are proceeding with the procedure at the request to recover funds through a public auction."
Bids for the parcel were received eight times from 4th to Sept. 12. However, all failed. The minimum bid at the first auction was 63.4457 billion won, but by the final auction it had fallen to 32.5 billion won, about half.
The construction industry expects similar cases to continue as government regulations on lifestyle accommodation facilities tighten. Saengsuk are a hybrid housing type that combines hotel accommodations with residential-style officetels. They are subject to both the Building Act and the Public Sanitation Control Act.
In 2012, the government revised the enforcement decree of the Public Sanitation Control Act to allow residents to register their address at saengsuk and, with few restrictions, effectively use them as dwellings. The aim was to accommodate long-stay demand from foreign tourists and others. But after criticism that they had become a "hotbed" of real estate speculation, the government in 2021 amended the enforcement decree of the Building Act to ban residential use of saengsuk. It also decided to impose a compulsory compliance penalty unless they are converted to officetels or registered as lodging businesses. The compulsory compliance penalty will be imposed starting this month.
Lee Juhyeon, senior researcher at GGAuction, said, "The risk of unsold units for saengsuk is extremely high, so investment demand for saengsuk has sharply declined. Many places planning to build saengsuk are not proceeding," and added, "This business site also appears to have been affected by this."
Lee Yeong-rae, head of Real Estate Survey, said, "This is a case where the parcel was purchased and invested in when land prices were high and investment demand for saengsuk was strong," and added, "Government regulations dampened the popularity of saengsuk, and attempts to raise pre-sale prices to match the high parcel purchase cost were the cause of the unsold units." According to Busan City, as of this month there are 11,873 saengsuk units in the Busan area subject to compulsory compliance penalties.