Cancellation of Mugunghwa Vista Dongwon in Ulsan… Are There Any Measures for Unsold Properties from Local Construction Companies?
The sale of Mugunghwa Vista Dongwon, underway in Mugoda, Nam-gu, Ulsan, has been canceled, resulting in a construction stoppage.
This incident clearly demonstrates the challenges posed to construction companies by the stagnation of the local real estate market and the increase in unsold inventory.
As Dongwon Development, a leading construction company in Busan, has decided to halt its projects due to poor sales performance, analyses suggest that the crisis in the local construction market is becoming more serious.
Starting with the Ulsan Mugunghwa site, it seems likely that the sales schedules for all projects currently being undertaken by Dongwon Development will be postponed indefinitely. The projects planned by Dongwon Development in the Busan-Ulsan-Gyeongnam area include:
Buam 3rd Mugunghwa Vista, Inpark Mugunghwa Vista, Sasang Park Private Park Creation Special Project, Naengjeong Station Dongwon Vista 2nd, Jung-sang Dong Mugunghwa Vista in Buk-gu, Ulsan, Haeundae Woon Dong Express Bus Terminal Site Mugunghwa Vista, Haeundae Jung-dong Mugunghwa Vista 2nd, and Centum SKY.V among others.
Such contraction in the regional construction market is expected to continue, and its impact may expand further.
Construction Stopped at 30% Progress for Mugunghwa Vista Dongwon
Mugunghwa Vista Dongwon is a mixed-use complex composed of 37 floors above ground and 6 floors below, totaling 580 units. Of these, 481 units were planned for general sale; however, despite being anticipated as a representative landmark in Ulsan Mugoda, the subscription competition rate failed to surpass 1:1 in the first and second rounds last October, resulting in disappointing popularity.
As a result, the low contract rate led Dongwon Development to cancel existing sale contracts and decide to stop construction. It is quite unusual for construction to stop in a situation where a construction company has not gone bankrupt, highlighting the difficulties in the local sale market.
Changes in the real estate market are expected, and this situation will have a significant impact on future investment strategies.
Currently, the construction is on hold at 30% progress. If the sales market improves in the future, there is a possibility to restart the project. A representative from Dongwon Development stated, “The current market situation is tough, but we plan to push for sales again next year.”
Local Construction Companies Facing Chain Impacts from Increasing Unsold Properties
The real estate market in the regions including Busan and Ulsan has faced serious stagnation due to unsold properties for a long time. According to materials from the Ministry of Land, Infrastructure and Transport, as of January 2024, the number of ‘maliciously unsold’ houses in Ulsan has increased by 441.7% compared to the previous year, reaching 1,013 units. Busan also experienced an increase to 2,268 units, up 93.1% compared to the same period last year, leading to an unstable situation.
In such a situation, there are currently 11 construction projects, including Mugunghwa Vista Dongwon, that have been halted for more than two years in Busan. The stagnation of the real estate market poses significant challenges for local construction companies in progressing their projects, and concerns are rising regarding a chain of bankruptcies if the unsold properties continue.
These issues are negatively impacting the local economy, making it urgent to find solutions moving forward.
Dongwon Development Experiences Performance Decline… Crisis Due to Underperformance of Self-Operated Projects
Dongwon Development, a major construction company in Busan, is currently struggling due to poor performance. Out of the three projects they have undertaken this year—Naengjeong Station Vista Dongwon, Gwangalli Centum Vista Dongwon, and Mugunghwa Vista Dongwon—issues with unsold properties have arisen in two of them.
Especially for Mugunghwa Vista Dongwon, even though it is a project directly managed by Dongwon Development, the failure to sell has exacerbated the financial burden. In an effort to solve this, they lowered the sale price by about 5% and attempted to re-launch the sale, but the average subscription competition rate was only 0.12 to 1, showing very poor results.
This situation is expected to have a significant impact on Dongwon Development's future management strategy.
The current situation for Dongwon Development's performance is not good. As of the third quarter of 2024, revenue has plummeted by 27% to 431.8 billion won, and operating profit has decreased by 57%, amounting to only 27.8 billion won.
In the third quarter, revenue fell by 46%, capping at 98.4 billion won, with an operating loss of 6.4 billion won. Additionally, the cost of sales rate has reached 102%, meaning there is no profitability even if the business proceeds.
Government Measures Necessary to Resolve Unsold Properties
Experts warn that the liquidity crisis for local construction companies is worsening, emphasizing the urgent need for additional government measures to address this.
According to a real estate industry insider, “It is necessary for construction companies to adjust sale prices according to the market conditions, but government support must accompany this.” Some construction companies are trying to resolve the unsold property issue through discounted sales, but cases of cancellation of sales or halting projects are increasing, indicating the overall crisis situation in the construction industry.
Moreover, if the number of unsold apartments continues to rise, the financial burden on construction companies is likely to increase, and the incidence of construction stoppages will also likely rise. Considering this situation, claims for the government to prepare policy responses for resolving unsold properties and providing support to the construction industry are gaining momentum.
Conclusion: Local Real Estate Market Faces Key Challenge of Resolving Unsold Properties
The cancellation of the sale and construction stoppage of Mugunghwa Vista Dongwon highlights the severe stagnation in the local real estate market.
In several areas including Ulsan and Busan, the inventory of unsold properties is increasing, and the performance of construction companies is deteriorating. Consequently, cases of project halts are gradually increasing.
There is an urgent need for the government to implement measures to resolve unsold properties, and construction companies must seek ways to stabilize their projects through price adjustments and financial support that meet consumer expectations.
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