Speculative Capital Flowing into Buyeo and Boryung Regions

Speculative capital in the Chungcheong area is now flowing into the Buyeo and Boryung regions from Cheonan, Onyang, Yeongi and Gongju, real estate experts said. Favorable news such as the capital relocation and the opening of Korea Train Express have attracted investment money to the area.

Gongju, Yeongi, Yesan and Cheongyang have recently been designated as real estate speculation zones, while Buyeo and Boryung are still not regulated. Buyeo has seen the influx of investment since June. One real estate agent, Mr. Lee, said the region is in the early stage of the real estate boom.

About 10 new real estate agencies are jammed together along the street in Ssangbuk-ri, Buyeo. The number of agencies has increased to 70, from 20 at the end of June.

The prices of land and apartments have skyrocketed for the last two to three years. The price of apartments in the Noeun and Dunsan areas in Daejeon has doubled in just two years.

“The amount of loaned money increased to 85 billion won in January 2004, up from 50 billion won in December 2002,” said a banker at the Gongju branch of Chungcheong Hana Bank. This is because people have borrowed money to purchase land or apartments.

The Chungcheong area topped in the increase of loans of financial firms for the first half of this year, with a 6.14-percent rise. Loans extended by Woori Bank’s Chungcheong branches surged to 2.5 trillion won in June 2004, from 1.9 trillion won year-on-year. The number of branches increased from 29 to 32 during the same period.

Korea First Bank’s loans to the Chungcheong area in June this year also rose from 621.1 billion won to 798.5 billion won year-on-year.

Chungcheong Hana Bank saw the increase of branches to 81, up from 76 at the end of last year.

Savings banks have been paying attention to Project Financing (PF) that provides funds for constructing apartment complexes in Chungcheong area.

“The market for PF was not established in Chungcheong area last year, but this year witnessed two successful PFs, and 10 cases are being considered,” explained an official at Solomon Mutual Savings Bank.

Chungcheong Hana Bank said that investment fervor created by outsiders has died down, and people are now taking a wait-and-see attitude.

The price of apartments in the Chungnam area, which rose continuously for more than three years, fell by 0.52 percent from July to August.

“The price fell because summer is off-season for real estate markets, and the supply surpassed the demand,” said Kim Hee-seon, general director at Real Estate 114. “When industrial complexes of big corporations and the capital relocation are completed as planned, house prices will rise in the long-term.”

Since residents living in the administrative government site are expected to look for a new place to live with their compensation money, the real estate boom in Chungcheong area will not subside in the near future.

“Banks will fiercely compete with each other to attract new customers when huge amounts of compensation money are given out,” said a banker at Chungcheong Hana Bank.

The bank is considering opening new branches in the new administrative capital, or branches on wheels.

People in Chungcheong area, however, are more concerned about the recent boom in the region.

“My relatives in other areas are envious of me because the price of the apartment I bought two years ago has doubled, but I am anxious about a sudden bust,” said one resident, who wondered whether the capital is really going to be moved.

“It is speculative money, not improving real economy, that drives up real estate prices,” said an official in Chungcheong Hana Bank. “People in the region worry that the current real estate boom may bust all of a sudden, instead of bring sustainable regional development.”

Seung-Jin Kim Cheol-Yong Lee sarafina@donga.com lcy(@donga.com