SH Corporation "Naegok District Development Profits Increase 5 Times Target"... Public Housing Asset Value Rises

Development Profit in Naegok District 1.3063 Trillion KRW
5 Times the Initial Goal of 246.5 Billion KRW at Project Start
Additional Reflection of Rental Housing Asset Value
Further Profit Increase Expected with Building Sale Conversion and Expansion

[Asia Economy Reporter Hwang Seoyul] The Naegok Bogumjari Housing Project, promoted by Seoul Housing and Communities Corporation (hereinafter SH Corporation), has reportedly achieved development profits five times higher than the initial target due to the increased asset value of rental housing.

SH Corporation announced on the 22nd that, after comparing and analyzing the business feasibility review conducted before the start of the Naegok district project and the results after its completion, it secured development profits of 1.3036 trillion KRW through the supply of 2,214 sale housing units, 2,138 rental housing units, and the sale of 103,306㎡ of private land (12.7% of the total area) in the Naegok district.

Investment costs for the Naegok district increased by 215.6 billion KRW compared to the initial feasibility review due to rises in compensation, indirect costs, and financial expenses. However, with an additional reflection of 1.2953 trillion KRW in the asset value of rental housing, development profits increased fivefold from the initial target of 246.5 billion KRW to 1.3063 trillion KRW.

This was the result of the policy by then Seoul Mayor Oh Se-hoon in 2009 to add mandatory construction of long-term lease housing, raising the public rental housing obligation ratio in public development projects from 25% to 50%.

The land development cost in the Naegok district was 8.9 million KRW per 3.3㎡, but the market price of SH Corporation-owned public housing with a net area of 84㎡ is currently about 1.8 billion KRW per household, with the estimated land price per household around 1.4 billion KRW, and the land price per 3.3㎡ is 79.5 million KRW, showing a significant increase compared to the land development cost.

Additionally, SH Corporation analyzed how business feasibility would change if building sale housing were supplied in the Naegok district. Building sale housing generally refers to land leasehold housing, where the land is leased by SH Corporation to residents and only the building is sold, unlike conventional sale housing where both land and building are sold.

As a result, it was confirmed that converting existing sale housing to building sale housing or increasing the floor area ratio to expand the supply of building sale housing would significantly increase development profits. Converting 2,214 sale housing units to building sale housing would worsen the cash business balance to -287.7 billion KRW, but the asset value of land owned by the corporation would increase, raising development profits to 2.3896 trillion KRW (based on official prices).

In particular, raising the floor area ratio to 450% would enable the supply of 8,960 building sale housing units, and with the increase in land asset value and improvement in cash business balance, development profits are analyzed to increase to 3.1628 trillion KRW (based on official prices).

Meanwhile, SH Corporation created 429,912㎡ (53% of the total area) of the total 811,615㎡ development area in Naegok as parks, green spaces, and educational facility sites, and supplied them free of charge to local governments, returning public assets to citizens.

SH Corporation plans to continue securing sufficient public assets for citizens in future development projects to enhance the value of public assets and will also shift housing projects to focus on building-only sales.

Furthermore, SH Corporation plans to propose institutional improvements to the business feasibility analysis standards and local public enterprise accounting standards, which currently impose institutional constraints on securing the corporation’s public assets. The current standards do not recognize fair prices reflecting real estate price fluctuations, causing business feasibility shortages and accounting settlement losses during feasibility reviews.

Kim Heondong, President of SH Corporation, stated, “We will continue to disclose public data to satisfy citizens’ right to know by additionally releasing results of major project districts and to ensure transparency and reliability in the corporation’s management.”

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