"We waited 20 years for a new apartment, and now we may end up in default" — even top-tier complexes face 4% relocation loans

[Financial News]#. A member of a redevelopment association in Yeouido, Seoul, was stunned after seeing the interest rate on the basic relocation loan. Even though a top-tier site is being built by one of the country’s five largest construction firms, the rate was set at 3.9%. It is a six-month floating rate. Member A sighed, saying, "If I take the 500 million won basic relocation loan and the additional relocation loan of 1 billion won offered by the builder, the interest cost alone over six years would reach 450 million won, which is on the level of an extra assessment."A Financial News survey on the basic relocation loan rates for major redevelopment and reconstruction projects built by the five largest construction firms found that the market has entered the 4% range. At the same time, another benchmark rate hike is expected in the second half of the year.
A redevelopment project in Yeouido is a representative case. The project recently received proposals from banks to finance relocation loans. The lowest rate selected was 3.9%. All other banks offered rates in the 4% range.
The situation is no different at other top-tier locations. A redevelopment association in Gangnam, where one of the five largest builders is handling construction, also saw its basic relocation loan rate set in the 4% range. A company official said, "Because this is a contract matter with the association, it is difficult to disclose the exact figure, but even top-tier sites are at around 4%."
The same holds true for other major builders. An official at one of the five largest construction firms said, "Relocation loan rates vary considerably depending on project viability and timing, but recently the basic relocation loan has been in the mid-4% range, while the additional relocation loan can be set by adding about 1.5 percentage points to the base rate."
The basic relocation loan rate is determined by applying a spread of 1.1 to 1.2 percentage points to the COFIX rate for new lending. The spread is set according to factors such as sales potential and project viability.
First, the COFIX rate has risen sharply. It climbed from 2.49% in September last year to 2.90% in June this year. On top of that, tighter lending rules in regulated areas have sharply reduced loan limits, and market participants say even prime complexes are facing hefty spreads.
The shock from financing rates in urban redevelopment projects is still unfolding. The Bank of Korea is expected to raise its benchmark rate. Relocation loans are usually based on a six-month floating rate, which means interest burdens are likely to keep rising as benchmark rates increase.
A housing association official said, "The benchmark rate is expected to rise twice in the second half of the year," adding, "In Seoul, redevelopment projects account for 90% of supply. A rate shock will likely make supply delays unavoidable."
Meanwhile, according to the Seoul Metropolitan Government, the estimated number of households that will need to relocate for redevelopment and reconstruction projects from this year through 2031 stands at 194,906. This year alone, the figure is estimated at more than 25,000 households. Looking at the projected volume for 2026 to 2031 by region, the southwest area has the most at 65,790 households, followed by the southeast area with 52,105 and the northeast area with 43,837.
ljb@fnnews.com Lee Jong-bae, Jeon Min-kyung, Choi A-young Reporter