[Public Voices] The National Disease of the Real Estate Republic... Korea Trapped by Empty Dreams

Kwangjae Lee, Secretary General of the Korea Manifesto Practice Headquarters
Indiscriminate Regional Development Promises Ahead of Elections
Local Residents Become the Biggest Victims

Kwangjae Lee, Secretary General of the Korea Manifesto Practice Headquarters

When election season comes, candidates indiscriminately spread magical promises to turn imagination into reality under the slogan of regional development. Especially in the Seoul metropolitan area, including Seoul, Gyeonggi, and Incheon, fierce competition takes place over voters' support. However, most large-scale development projects that promised dream cities were either canceled or indefinitely postponed, and the damage fell squarely on the residents of those areas, trapped by empty dreams.

In 2007, the 8-city project aimed to reclaim Yongyu-do and Muui-do, located south of Yeongjong-do where Incheon International Airport is, in the shape of the number eight, to create a Singapore-like city. At the time, the project was worth 317 trillion won, nearly matching South Korea's annual budget of 370 trillion won. However, it was abandoned before even the first shovel was dug, and local residents who had taken out loans using real estate as collateral, relying on compensation payments, quickly found themselves buried in unmanageable debt, becoming the biggest victims of the project.

The ‘Eunpyeong Alpharos’ project, which planned to build the world's second tallest 133-story super high-rise mixed-use entertainment center near Gupabal Station on Seoul Subway Line 3, and the 1.3 trillion won Alpharos PF project initiated in 2008, were canceled after five years. The Gyeonggi-do Suwon Gwanggyo New Town Econhill project financing (PF) project, with a total budget of 2.1 trillion won launched in 2009, was also canceled after four years.

Large-scale project financing (PF) projects should be kept at a distance from election promises. This is because they are 'long position' projects that require continuous financial input, expecting an increase in unrealized development gains. Nevertheless, they have been presented as election pledges under the slogan of regional development and have repeatedly failed due to rosy prospects, lack of accountability, and absence of alternatives.

The damage caused by the failure of PF projects is by no means limited to some local residents. It leads to credit crises and liquidity shortages in the PF market, including non-performing loans (NPLs). To resolve liquidity shortages, the government is likely to intervene in the failed PF market by supplying tens of trillions of won in policy finance, creating a vicious cycle funded by taxpayers' money.

Currently, with rising interest rates and a downturn in the real estate market, the risk of PF project failures causing significant shocks to both the real economy and financial sectors is very high. Warning signals continue as the exposure to real estate PF reached a total of 115.5 trillion won as of the end of September last year.

Nevertheless, in the last presidential and local elections, large-scale development projects promising dream cities were presented as election pledges one after another. In the upcoming general election, it is highly likely that large-scale development projects will be indiscriminately spread, especially in the Seoul metropolitan area, the key battleground, under the slogan of regional development.

Until the national disease of the real estate republic, where large-scale development projects are proposed as election pledges and people indulge in the expectation of golden eggs, is cured, the vicious cycle of supplying tens of trillions of won in policy finance funded by taxpayers' money will continue. And we must not forget that the damage will ultimately be borne by the entire nation.

Kwangjae Lee, Secretary General of the Korea Manifesto Practice Headquarters

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