All seven penthouse units offered in the member allocation for the Gaepo Jugong Complex 6 & 7 reconstruction project — considered the final piece of the Gaepo-dong redevelopment puzzle in Seoul's Gangnam district — received zero applications. Industry observers attribute the result to the government's stringent lending regulations that have made it difficult to secure billions of won in additional contributions, as well as a recent price correction in ultra-high-end Gangnam apartments that has tempered expectations of capital gains. The outcome has prompted assessments that the once-strong appeal of Gangnam penthouses, long regarded as a "symbol of wealth" due to their scarcity, is no longer what it used to be.
According to the redevelopment industry on May 5, the Gaepo Jugong Complex 6 & 7 reconstruction association tallied member allocation applications and found that not a single member applied as a first-priority applicant for the four penthouse units of 138 square meters (exclusive area, hereinafter) or the three units of 147 square meters. The most popular unit type was the mid-size 84 square meters, which drew 916 applicants.
The result stands in stark contrast to the strong demand for penthouses at Gangnam reconstruction complexes just a year ago. In a reallocation survey for Banpo Jugong Complex 1 Zones 1, 2 & 4 in February last year, 647 applicants competed for 551 units of 146 square meters. At Eunma Apartment, 12 members chose the 286-square-meter unit, for which owners of 84-square-meter units would need to pay an additional contribution of 9.45 billion won.
The reason for the lackluster interest in penthouses — despite the high premiums they command over standard unit types due to their scarcity — is the enormous additional contribution required. A member currently living in an 83-square-meter unit at Gaepo Jugong Complex 6 & 7 would need to pay roughly 400 million to 500 million won in additional contributions to receive a 100-square-meter unit. Choosing a 110-square-meter or 119-square-meter unit would require an additional 700 million won or 900 million won, respectively. For a 147-square-meter penthouse, however, the contribution surges to 7.1 billion won. Because basic relocation loans are capped at a maximum of 200 million won, members would need to arrange billions of won in cash even after factoring in supplementary relocation loans guaranteed by the construction company — making penthouses effectively "pie in the sky" for most members.
Analysts also point to rising property holding taxes and expectations of higher construction costs as factors that have dampened preference for large-size units, including penthouses. The annual holding tax on a Gangnam apartment valued at around 5 billion won currently stands at roughly 22 million won. If holding taxes are raised further, the tax burden on large-unit ownership could increase sharply. Meanwhile, the construction cost index, which stood at around 100 in early 2020, has climbed to 133 as of February this year. The estimated member sale price for an 84-square-meter unit at Gaepo Jugong Complex 6 & 7 is approximately 2.5 billion won, but this could rise further given inflation and construction cost increases. As a result, the penthouse units — with estimated member sale prices exceeding 9 billion won — are expected to be transferred to the general public sale pool and snapped up by cash-rich buyers.
Gaepo Jugong Complex 6 & 7, which will be transformed from a 15-story, 1,960-unit complex into a high-rise development of up to 35 stories with 2,698 units through the reconstruction, is targeting approval of its management and disposal plan in August this year and groundbreaking in October next year. Hyundai Engineering & Construction is the builder.
