A, who bought a reconstruction-candidate apartment in Siheung, Gyeonggi, six years ago for 265 million won, recently moved into a new 59-square-meter exclusive apartment after reconstruction. According to A, the contribution, which was expected to be around 180 million won at the time of purchase, rose to 240 million won as the project progressed and to around 300 million won at move-in. The total outlay, combining the purchase price and the contribution, is 565 million won. The current asking price for the same unit type is around 600 million won. The difference based on the asking price is only 35 million won. A said, "If you factor in six years of taxes and loan interest, there's virtually nothing left."
Cases are mounting in which the price advantage of reconstruction diminishes as reconstruction expectations are first reflected in existing apartment prices and then construction and financing costs rise. Some complexes now end up with total costs—existing unit purchase price plus expected contribution—similar to nearby new or recently built units.
As of the 1st, according to the real estate industry, the 59.92-square-meter exclusive units at e-Pyeonhansesang Siheung The Square, rebuilt from Yeongnam Apartments in Daeya-dong, Siheung, are listed at around 600 million won. Although it is a new building that began occupancy in Jul., the gap between A's total outlay and the asking price is about 35 million won.
The association's retained units put up for open bidding early this year were listed at similar prices. The association announced plans to sell 28 households in Feb. The minimum bid reference price for three 59-square-meter exclusive units was 556.85 million to 562 million won. That is almost the same as A's total outlay of 565 million won.
This complex is effectively a one-to-one reconstruction that rebuilt the existing 1,025 dwellings into 1,026 dwellings. It received project implementation approval in Sept. 2020 and management disposition plan approval in Nov. 2021, and obtained completion approval in Jun.
The project moved quickly, but the construction contract amount rose significantly. According to DL E&C disclosures, the contract amount increased from 215.5 billion won in Sept. 2023 to 249 billion won in Dec. 2024. That is up about 33.5 billion won, or 15.6%, in one year and three months.
A similar calculation emerges for Sanggye Jugong Complex 5 in Nowon District, Seoul, based on current prices. It was estimated that an owner of a 31-square-meter exclusive unit would have to pay a contribution of 365.9 million won to receive a 59-square-meter exclusive unit after reconstruction, and 604.77 million won to receive an 84-square-meter exclusive unit.
Considering that a 31.98-square-meter exclusive unit changed hands for 680 million won in Jun., the sum of the purchase price and the expected contribution to receive an 84-square-meter exclusive unit is about 1.285 billion won. That is not much different from the recent transaction price of an 84-square-meter exclusive unit at nearby Forena Nowon, which opened in 2020.
The contribution burden is also taking shape in the first-phase new towns. In Ilsan's Hugok Village Complexes 3, 4, 10, and 15, a plan is underway to rebuild the existing 2,564 dwellings into 4,304 dwellings by applying a floor area ratio of 350%. An analysis assuming construction costs of 7.5 million won per 3.3 square meters and a general pre-sale price of 34.5 million won estimated that an owner of an 84-square-meter exclusive unit would need to pay about 280 million won to receive the same size.
There are cases where additional costs arise near the end of a project. The association of "Hillstate Deungchon Station" in Gangseo District, Seoul, which is scheduled for move-in in Oct., approved a total additional contribution of 16.2 billion won at a general meeting to amend the management disposition plan in Jun. The estimated contribution that an owner of a 76-square-meter exclusive unit at Eunma Apartments in Daechi-dong must pay to receive the same size after reconstruction also rose from 230 million won in Sept. last year to 420 million won in May this year.
An official at a major construction company said, "When a reconstruction project gains momentum, the value of the new build upon completion is first reflected in the price of existing apartments, but construction and financing costs keep changing afterward," adding, "If you buy at a high price after the project has progressed significantly, your expected revenue can shrink sharply when the contribution increases."