65% Growth in Remodeling Over One Year... Major Construction Companies Compete Fiercely for Projects

Heat Extends Beyond Seoul Metropolitan Area to Busan, Daegu, and Other Regions
61 Union Establishment Approvals in Seoul Area as of March
Fierce Competition Expected for Large Complexes Like Garak Ssangyong 1st and Namsan Town This Year

An urban apartment is visible at the Korea International Trade Association in Gangnam-gu, Seoul.
[Image source=Yonhap News]

[Asia Economy Reporter Onyu Lim] The apartment remodeling market is rapidly growing as a reflection of strengthened reconstruction regulations. With public-led housing supply disrupted by the speculation scandal involving employees of Korea Land and Housing Corporation (LH), interest in remodeling is expected to increase further. However, there are concerns that the unclear approval of vertical extensions and load-bearing wall demolition, which determine project feasibility, poses clear limitations.

◇ Remodeling grows rapidly as reconstruction is blocked = According to the Korea Remodeling Association on the 22nd, as of today, 61 complexes with 44,915 households in the metropolitan area have received remodeling association establishment approval. Compared to 37 complexes with 23,935 households at the end of December 2019, this represents a 65% surge in just one year and three months. Seven new associations have been approved this year alone. An association official said, "Interest in remodeling is growing not only in the metropolitan area but also in cities like Busan and Daegu," adding, "This year, when complexes at the promotion committee stage are expected to formally establish associations, the number of promotion complexes will increase further." In fact, LG Metrocity in Yongho-dong, Nam-gu, Busan, and Woobang Cheongsol Mansion Apartment in Beomeo-dong, Suseong-gu, Daegu recently formed remodeling promotion committees for the first time in their respective regions.

Remodeling differs from reconstruction, which involves completely demolishing and rebuilding an apartment; it maintains the existing framework while expanding the floor plan forward and backward to increase area or adding floors to increase the number of housing units. It is also possible to newly build or expand underground parking lots.

While reconstruction has become difficult since March 2018 due to strengthened safety inspections, making it hard to pass with grades D (conditionally allowed) or E (poor) even after 30 years from completion, remodeling can be pursued if the building is over 15 years old. Vertical extensions are possible if the structural safety inspection grades are B or higher (A to C maintenance grades), and horizontal extensions are allowed if the grade is C or higher. Since the approval standards are less stringent than reconstruction, project promotion is relatively easier, and remodeling is not subject to the excess profit recovery system.

◇ Fierce competition among construction companies = Accordingly, large construction companies desperately seeking new business opportunities are fiercely competing to win remodeling projects. The most proactive players are Ssangyong Construction and POSCO Construction, which rank first in the industry for completion and order records in the remodeling market. Ssangyong Construction recently won the contract for the first remodeling complex in Gwangmyeong, Gyeonggi Province, the Cheolsan Hanshin Apartment, jointly with Hyundai Engineering. Cheolsan Hanshin is a large complex with a total of 1,568 households, attracting industry attention.

POSCO Construction was also selected as the contractor for Yongin Hyundai Sungwoo Complex 8 in December last year. The two companies are expected to compete again in May for the contractor selection of Garak Ssangyong 1st Complex in Songpa-gu, Seoul. Hyundai Construction recently established a dedicated remodeling team and won the remodeling project for Sinjeong Village Complex 9 in Suji, Yongin, Gyeonggi Province, in January. With large complexes in Seoul such as Namsan Town in Jung-gu, Woosung, Geukdong, Shindong-a in Dongjak-gu, and Seonsa Hyundai in Gangdong-gu scheduled to select contractors within the year, competition among companies is expected to be intense.

However, there are criticisms that the government's strong regulatory stance on the core issues of remodeling projects?vertical extensions and permission for demolition of load-bearing walls between units?limits market activation. Although vertical extensions have been permitted since April 2014, only Seongji Apartment in Songpa-dong, Songpa-gu, Seoul, has received approval due to stringent safety inspections.

The government's decision on whether to allow demolition of load-bearing walls has also been delayed for five years. Load-bearing walls support or distribute the building's load, and demolishing them is necessary to expand lateral space during remodeling. The government announced at the end of 2015 that partial demolition of load-bearing walls between apartment units would be allowed during vertical extension remodeling, but safety concerns led to a review decision in August 2016. However, no results have been announced even after nearly five years.

A real estate industry insider advised, "Even just news of remodeling promotion causes Seoul housing prices to jump by hundreds of millions of won, but due to various regulations limiting project feasibility and the small number of completed complexes, caution is needed when purchasing units in promotion complexes."

This content was produced with the assistance of AI translation services.