'Move-in Delayed, But Interim Payment Interest Rates Doubled'... Officetel Contract Termination Disputes Ongoing

Officetels, which had been spotlighted as alternatives to apartments and emerged as one of the investment destinations, are now suffering from disputes with purchasers. Recently, due to the decline in apartment prices and the easing of real estate regulations, officetel prices have been falling sharply. Moreover, with domestic and international variables such as the Cargo Solidarity strike causing delays in move-ins, multiple disputes over 'contract cancellations' have arisen.

Changneung Beneheim Phase 3

Changneung Beneheim Phase 3: About 40 Demand Contract Cancellations

According to residents of Goyang City and prospective residents of Changneung Beneheim Phase 3 on the 24th, this officetel, which was sold at the end of 2020, is facing conflicts between purchasers demanding contract cancellations and the developer and construction company ahead of the scheduled move-in at the end of July. Some residents are demanding contract cancellations, holding the developer responsible for the over six-month delay, while the developer and construction company argue that contract cancellations are impossible due to domestic and international factors such as the Cargo Solidarity strike causing construction schedule disruptions.

The original scheduled move-in date for this officetel was January of this year. However, due to the rise in raw material prices caused by the Russia-Ukraine war and the Cargo Solidarity strike, construction was delayed, pushing back the move-in date multiple times (January → April → June → end of July).

As move-ins were repeatedly postponed, the damages to purchasers increased. Those who purchased for rental purposes such as jeonse or monthly rent are experiencing the inconvenience of having to find new lease contracts, while those preparing to move in have been storing their belongings, staying at relatives' homes, or barely extending contracts on their current residences while waiting to move in. Particularly, the financial losses are significant. The fixed interest rate of 4.5% on interim payments agreed upon at the time of sale has soared to 9%.

Kang Min-seok, representative of the Residents' Emergency Response Committee, lamented, "Even though the developer is responsible for the delay, they are forcing purchasers to sign for a 9% interim payment loan."

In response, some purchasers of Changneung Beneheim Phase 3 have demanded contract cancellations from the developer and construction company, holding them accountable for the move-in delays. The sales contract includes a clause allowing contract cancellation if move-in is impossible more than three months after the original scheduled date. About 40 residents have filed lawsuits demanding contract cancellations based on this clause.

However, the developer and construction company maintain that contract cancellations are difficult. Lee Gui-hyung, Executive Director of Kwangsung General Construction, the construction company, said, "Due to the COVID-19 situation, manpower supply became difficult, causing construction delays. Subsequently, the steel crisis, cement crisis, and Cargo Solidarity strike occurred consecutively, making it impossible to meet the construction schedule. At present, we cannot accept contract cancellation demands, but if residents file lawsuits, we will accept and respond accordingly."

He added, "Only about one-tenth of the residents want contract cancellations, so we are focusing on meeting the move-in schedule to allow the remaining contract holders to move in, and we will compensate for the delay by reducing the interim payments."

The local government, Goyang City, is also in a difficult position. Some purchasers of Changneung Beneheim Phase 3 have filed complaints related to contract cancellations due to move-in delays, but the city has no effective means to mediate.

Lee Sang-won, head of the Building Permit Team at Goyang City's Citizen Safety and Housing Bureau, said, "Due to the recent real estate market downturn and regulatory easing, officetel prices have been falling sharply, and purchasers of several officetel projects, including Beneheim Phase 3, are demanding contract cancellations. Honestly, the Beneheim Phase 3 developer is also facing difficulties due to the downturn in the construction market and external factors, so there is nothing we can do by stepping in."

Officetel Supply and Competition Rates Hit Rock Bottom

The real estate industry expects contract cancellation issues surrounding officetels, like Beneheim Phase 3, to intensify. Officetels had attracted attention as alternatives during the housing market boom because they were subject to fewer regulations than apartments, but soaring interest rates, the real estate market slump, and regulatory easing have diminished their investment value.

In fact, officetels that once recorded competition rates of several thousand to one are now seeing listings with negative premiums below the sale price. For example, in Nonhyeon-dong, Gangnam-gu, Seoul, 'Lucia Dosan 208' has listings priced 100 million KRW below the sale price, and near Gyodae Station, 'Eluke Banpo,' scheduled for move-in in June, has listings discounted by 50 million KRW.

Given this situation, officetel supply and subscription competition rates this year have fallen to historic lows. According to an analysis by Real Today of Korea Real Estate Board's subscription home data, from January to the 18th of this month, nationwide officetel supply was only 2,277 units. This is about one-third of the 6,139 units supplied from January to May last year.

The officetel subscription competition rate was 25.2 to 1 in 2020, 4.8 to 1 in 2021, and 13.8 to 1 last year, but it dropped to 4.0 to 1 this year. Unsold units are also increasing. Among 12 officetel complexes that held subscriptions this year, half (6) recorded undersubscription.

A real estate industry official said, "Many officetels nearing completion are experiencing move-in delays due to rising raw material prices and the Cargo Solidarity strike. As investment demand for officetels is rapidly declining, many purchasers are expected to seek contract cancellations citing move-in delays to avoid losses."

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