English translation of the original Korean report. Images and source documents may contain Korean text.

Just 48 Applications Through Second-Round Subscriptions…Developer’s Equity at Negative KRW 20.9 Billion and Borrowings at KRW 574.9 Billion at Year-End

The 103㎡ Type B units at ‘Cheongna Ark One Prugio,’ an apartment development being constructed by Daewoo E&C in Incheon, fell 76 units short of the 124 units offered even after second-round housing subscriptions closed.

The developer, Cheongna Smart City, was in a state of complete capital impairment at the end of last year, with total equity of negative KRW 20.9 billion. For a developer that must use proceeds from housing sales to repay debt and construction costs, unsold units translate directly into financial pressure.

According to the Korea Real Estate Board’s ApplyHome platform on the 14th, the 103㎡ Type B received a combined 48 applications in the first and second subscription rounds. It was the only one of the six unit types that remained undersubscribed after the second round. All 25 units allocated to special supply for this type had remained unclaimed, increasing the number available through general subscriptions from 99 to 124.

Across the entire development, 1,597 applications were submitted for 604 units offered through general subscriptions, including 250 units left over from special supply, out of the project’s total 868 apartment units. The 84㎡ Type A recorded a first-round subscription competition ratio of 12.91 to 1 among applicants from the designated local area.

■ Similarly Priced 103㎡ Type A Filled Its Allocation…Only Type B Remained Undersubscribed

The highest sale price for the 103㎡ Type B is KRW 1.1634 billion. According to figures compiled by Jarilab from actual transaction prices reported to the Ministry of Land, Infrastructure and Transport, this is more than KRW 400 million above the median transaction price of KRW 750 million over the past year for apartments in the 40-pyeong size range at nearby Cheongna Hanwha Dream & Green, completed in 2012. However, a direct comparison between prices at a complex now in its 14th year since completion and the presale price of a newly built development has limitations.

The sale price alone does not explain the difference. The 103㎡ Type A has a maximum sale price of KRW 1.171 billion, KRW 7.6 million higher than Type B, yet received 204 applications in the first round alone for 114 available units. The difference was already evident during the special supply stage. Of the 29 Type A units allocated to special supply, 10 found buyers, while all 25 Type B units remained unclaimed.

Local development conditions present a mixed picture. Hana Financial Group has been relocating approximately 2,200 employees to its Cheongna Group Headquarters since September, but the Cheongna extension of Seoul Subway Line 7, originally targeted for opening by the end of 2027, has been delayed because of financial difficulties at the train manufacturer.

The housing sales market on the outskirts of the Seoul metropolitan area is also struggling. Lotte Engineering & Construction’s ‘Hwaseong Hyangnam Lotte Castle Signature,’ which accepted housing subscriptions in Hyangnam-eup, Hwaseong, Gyeonggi Province, this month, received 501 applications for 1,465 units offered through general subscriptions, leaving 980 units unclaimed even after the second round. At Ark One, 76 of the 604 units offered through general subscriptions remained unclaimed.

■ KRW 58 Billion Net Loss, KRW 574.9 Billion in Borrowings…Housing Sales Proceeds Are a Key Funding Source

According to Cheongna Smart City’s audit report, the company posted a net loss of KRW 58 billion last year. Its accumulated deficit of KRW 105.9 billion exceeded its paid-in capital of KRW 85 billion, while borrowings stood at KRW 574.9 billion. Of that amount, KRW 281.7 billion in land loans for Block M5, where Ark One is to be built, had maturity dates in October and November of this year.

The developer recognizes revenue from units under signed sales contracts in line with construction progress, meaning interest expenses accumulate first around the start of construction. Signed sales contracts and interim installment payments are therefore a key source of funding for the project.

Cheongna Smart City’s shareholders include EMP BELSTAR LIMITED (30%), Dodam Estate, Daemyung Chemical and Wellmade Development (15.33% each), and Mirae Asset Securities (13%). Shares in the company have been pledged as collateral for project-financing loans related to the neighboring Block B1 officetel development, with Daewoo E&C holding second- and third-priority pledges.

Daewoo E&C signed a construction contract worth KRW 818.056 billion with Cheongna Smart City in July. The amount represents 10.16% of Daewoo E&C’s consolidated revenue last year. The contract provides for progress payments based on completed construction work, and the project was 0.02% complete as of the end of September. Including the KRW 479.5 billion contract for ‘Cheongna Peak One Prugio’ on Block B1, which has the same developer, Daewoo E&C has secured construction contracts worth KRW 1.2975 trillion from Cheongna Smart City.

According to a report by IB Tomato, Cheongna Smart City entered into a KRW 600 billion main project-financing (PF) agreement for the Ark One development in August, covering financing at the construction stage. Daewoo E&C also entered into an agreement under which it would be liable for damages if it failed to fulfill its obligation to complete construction. Daewoo E&C told the outlet that construction payments would be made from housing sales proceeds according to construction progress.

Daewoo E&C’s largest shareholder is Jungheung Engineering & Construction, which holds a 41.07% stake, while its affiliate Jungheung Construction holds 10.27%. Jungheung Engineering & Construction is wholly owned by Jung Won-joo, chairman of Daewoo E&C. Chairman Jung is an unregistered executive, while the company’s CEO is Executive Vice President Lee Kang-seok, who was appointed on the 2nd of last month.

Contracts with successful applicants are scheduled to be signed from the 22nd through the 24th. Whether cancellations by successful applicants and units released because of applicant ineligibility will add to the 76 unsubscribed units will become clear during that period.