Apartment prices in Seoul areas exempt from the price-cap regulation are soaring to record highs. Following last month's Noryangjin New Town redevelopment in Dongjak District, where the average sale price topped 70 million won per 3.3 square meters, another complex has surpassed 80 million won just one month later. While sale prices at price-capped reconstruction projects in the Gangnam area remain suppressed, prices in non-Gangnam districts are climbing steeply, with no effective mechanism to rein them in. Critics also point out that redevelopment and reconstruction unions are reaping excessive profits through arbitrary price calculations, as construction costs vary widely from complex to complex.
According to the Korea Real Estate Board's subscription portal on Monday, the sale price for 84-square-meter units at Acro River Sky, a redevelopment of Noryangjin Zone 8, has been set at 2.499 billion to 2.795 billion won. That marks an increase of more than 200 million won compared with La Classe Xi The Fine (2.287 billion to 2.585 billion won), which was offered last month in Zone 6 of the same Noryangjin New Town. On a supply-area basis, the price per 3.3 square meters ranges from 71.78 million to 80.01 million won.
Despite criticism over high pricing, La Classe Xi The Fine achieved an average competition ratio of 26.9 to 1 in general subscription and effectively sold out, which analysts cite as a key factor behind the sharp price jump within a month. Summit The Hill in Heukseok New Town, expected to launch as early as the end of this month, is also projected to be priced at around 85 million won per 3.3 square meters, suggesting that the high-price trend in non-price-cap areas will continue.
Construction Costs Set Like 'Rubber Bands' to Match Desired Sale Prices
Behind the rapid surge in sale prices at new apartment complexes in non-Gangnam areas lies the "construction cost" that redevelopment and reconstruction unions, as project operators, calculate in an ad hoc manner.
A breakdown of the sale price structures of La Classe Xi The Fine and Acro River Sky in Noryangjin New Town shows a stark contrast. The two complexes, offered just one month apart, show completely reversed proportions of land cost and construction cost within the total sale price. According to the subscription notice disclosed Monday, Acro River Sky's sale price of 2.499 billion to 2.795 billion won for 84-square-meter units consists of roughly 70 percent land cost (1.755 billion to 1.963 billion won) and 30 percent construction cost (744 million to 832 million won). In contrast, La Classe Xi The Fine's 84-square-meter sale price of 2.287 billion to 2.585 billion won comprises 1.032 billion to 1.167 billion won in land cost and 1.254 billion to 1.417 billion won in construction cost, with construction cost accounting for nearly 50 percent.
Land cost differences are inevitable depending on factors such as terrain, road access, and the timing of appraisals tied to management disposition plan approval. Noryangjin Zones 6 and 8 received management disposition plan approval in January 2021 and December 2021 respectively, nearly a year apart. Zone 8 has relatively flatter terrain than Zone 6 and is a so-called "elementary-school-embracing complex" with an elementary school within its grounds, giving it better locational conditions. Its land share is also larger at 49 square meters per 84-square-meter unit, compared with 40 square meters in Zone 6, resulting in a higher land cost.
Given these factors, the land cost calculations for both apartments are not unreasonable. The issue ultimately lies with construction costs. A gap of more than 60 percent in construction costs between apartments offered just one month apart indicates that construction cost calculations have been made in an ad hoc manner. "The actual construction cost for building an 84-square-meter unit would be less than 400 million won," said Park Ji-min, head of Wolyong Subscription Research Institute. "The union and the builder aligned their interests to boost the profit of the product." An official at Construction Company A also said, "If projects are carried out in the same area at similar times, construction costs cannot differ so significantly."
Lottery or High Prices: "Transparent Disclosure of Construction Costs and Price Cap Reform Are Urgent"
Some argue that construction costs can vary depending on complex design, but both apartments recently supplied in Noryangjin New Town applied their respective builders' high-end residential brands. Both invested in exterior design, landscaping, and community facilities, and used materials comparable to those in Gangnam to pursue premium positioning. Given this, critics say such a wide construction cost gap between the two apartments reflects exploitation of loopholes that allow ad hoc sale price calculations in non-price-cap areas.
Currently, sites not subject to the price cap only need to disclose sale prices divided into land cost and construction cost. In other words, once the sale price is determined and the land cost is fixed through appraisal, the remainder is assigned as construction cost. "Land cost is an area that cannot be arbitrarily adjusted," an official at Construction Company B said. "Ultimately, to minimize union members' contributions and maximize profits, the only way is to raise construction costs and push up the sale price." The official added, "Although it's labeled construction cost, it's actually just the pre-determined sale price minus the land cost, so it cannot accurately be called construction cost."
Experts predict that unless the current sale price calculation structure is overhauled, arbitrary construction cost setting and rising sale prices will continue. "We need construction cost calculation standards that consumers can accept," said Suh Jin-hyung, a professor of real estate law at Kwangwoon University. "Measures to transparently disclose construction cost breakdowns are also worth considering." Park said, "The price cap system is creating 'lottery subscriptions' and 'price reversal' phenomena. It's time to reform the price cap system in one way or another."
