Brand Power Builders Suffer Setback in Seoul

Price competitiveness is important -

GS E&C constructed 411 units in the high-rise residential-commercial complex ‘Muk-dong Xi’, in Jungrang-gu, Seoul. Up to now, only 94 people, including those considered third priority, have applied to buy, creating a competitive rate of just 0.23. The going rate is 16.5 million won per 3.3m².

Seventy-seven percent of the 411 units remain unsold, tarnishing the reputation of Xi, one of the top apartment brands in Korea.

The sluggish sales were all the more shocking to domestic builders given the fact that Seoul has the largest demand for newly-built apartments.

In non-Seoul metropolitan area, Daelim Construction built 1,882 apartment units, called ‘e-comfortable world’, in Yangsan, South Gyeongsang Province, saw only 66 applicants, leaving 1,816 units unsold. Even after considering the fact that the non-Seoul metropolitan market is currently slow, it is surprising that large builders with extensive brand power are failing to sell 96.5% of their units. There has been only one applicant from the top and second priority groups.

Conversely, Heungdeok district in Yongin City saw new and inexpensive apartments selling like hot cakes. Units in an apartment complex named ‘Hoban Verdium’ were offered at a 30% discount, or 10.6 million won per 3.3m². In this case there were 6,837 applicants competing for 229 units.

An official of a real estate consulting agency said, “As apartment prices level off, buyers selectively apply for units with good, competitive prices. The popularity of apartments with high brand awareness is winding down.”

Big builders can’t draw up business plans for next year –

With their new apartments remaining unsold, large construction companies are having a hard time producing their business plans for 2008. While the civil engineering and construction markets are predictable, the housing market is not.

For the last several years, with the housing sector growing to account for more than 30% of the entire revenue of big builders, the unpredictability of the sector has made it difficult for them to produce realistic business plans.

An official from Daewoo Construction said, “Uncertainty in the market is so great that we cannot anticipate next year’s orders. We are agonizing over lackluster apartment sales of complexes in the greater-Seoul metropolitan area.”

The December presidential election provides additional anguish for builders. A Hyundai Construction official said, “Not until the presidential election can we finalize our business plan. If we anticipate larger orders, we may suffer financial difficulties. But if we anticipate small orders, we run the risk of losing market share to the competition.”

jefflee@donga.com koh@donga.com