The redevelopment of the Sewoon district in downtown Seoul, promoted by Seoul Mayor Oh Se-hoon as the “Korean version of Roppongi Hills,” is in jeopardy. Project financing (PF) regulations threaten to derail the project, potentially resulting in what experts describe as a “half-completed” initiative. Changes in the Seoul Metropolitan Government’s business methods have led to unavoidable loan extensions for key areas, but the government’s guideline that “four loan extensions equate to insolvency” has put these areas at risk of being put up for public sale.
Financial institutions have informed the developer of the Sewoon project that PF loan repayments are due in late July. Seoul’s plan to transform the Sewoon district into a landmark with high-density skyscrapers will also likely be disrupted. Despite the imminent collapse of the development plan, city officials maintain a passive attitude, stating that influencing central government policies on private projects is challenging. Experts criticize this situation as a “farce created by uniform government regulations and irresponsible local administration.”
Lenders recently informed Hanho Construction, the developer of sections 3-3 and 3-9 of the Sewoon redevelopment project, that it would be “extremely difficult” to extend the maturities of bridge loans due in July, according to people familiar with the matter on June 9. Bridge loans are short-term loans that developers use to kickstart real estate development projects. Hanho Construction secured 324 billion won ($235 million) in bridge loans for the Sewoon redevelopment project. This loan has already been extended four times. The Financial Supervisory Service (FSS), South Korea’s financial regulator, classifies projects with more than four loan extensions as “at risk of insolvency” and would be subject to short sales.
Hanho Construction argues this classification is unfair, citing delays caused by policy changes from the Seoul Metropolitan Government. “The two sections were initially approved for separate construction in 2017 and 2021, but the schedule was delayed when the Seoul Metropolitan Government changed its policy to integrated development,” a company representative said. “We kept extending the loans while waiting for the Seoul Metropolitan Government’s deliberation, and it is unreasonable to label them insolvent now.”
The redevelopment site in the Sewoon district dealing with project financing-related issues is located near former famous restaurants Eulji Myunok and Yangmiok, close to the Euljiro 3-ga subway station. Although the developer secured project approval in 2021 and selected a contractor, the project was halted in March 2022 following a request from the Seoul Metropolitan Government to await significant policy revisions.”
A month later, in April 2022, Seoul Mayor Oh Se-hoon announced the “Green Urban Space Recreation Strategy” and designated the Sewoon district as the lead project for Seoul’s green makeover. The strategy aimed to consolidate fragmented areas, relax building regulations, and promote high-rise, high-density development to secure 140,000 square meters of green space.
But the permit review process for developers, which was expected to be completed by 2023, was repeatedly delayed. Amid a real estate market downturn and a tightening project financing market, the developer extended the loan maturity several times, incurring additional interest and fees amounting to 103.5 billion won.
Adding to such woes, the financial regulator’s criterion, which considers projects extending loan maturities four times as insolvent, places the developer in a precarious position. If the loans for sections 3-3 and 3-9 are not extended, the lenders will be forced to auction off the land, effectively bringing the development of the lead project sites in the Sewoon district back to square one.
