[비즈한국] As the Haeundae Elmar Switzen officetel in Busan, constructed by KCC Engineering & Construction021320, struggles with sluggish sales one year after its launch, the project developer has alleged that KCC Engineering & Construction is hindering sales efforts, drawing attention to the situation. The developer claims that KCC Engineering & Construction has disrupted sales operations by, for example, delaying payments to the site's sales agency, while KCC Engineering & Construction maintains that it is diligently fulfilling its duties as the contractor.
Haeundae Elmar Switzen is an officetel complex currently under construction in U-dong, Haeundae-gu, Busan, consisting of one building with 36 floors above ground (180 units). It is situated on a prime piece of land just 200 meters from Haeundae Station on Subway Line 2, an area with high pedestrian traffic. Previously, the Haeundae Jung-dong Switzen (396 units), located about 1km east of this site, sold out in its 2020 general pre-sale subscription with an average competition rate of 93 to 1.
The development project for Haeundae Elmar Switzen is being managed by Taekwang Development, a Busan-based real estate developer. In December 2021, Taekwang Development signed a construction contract with KCC Engineering & Construction worth a total of 68.7 billion won, with a construction period of 44 months. On the same day, an agreement was signed for project financing (PF) loans to secure 61 billion won in project funds from financial institutions, including Heungkuk Life Insurance. The project gained momentum after receiving officetel building permits in January of the following year.
The contractor, KCC Engineering & Construction, began construction on the Haeundae Elmar Switzen officetel around September 2022 and work is currently ongoing. As of last October, the progress rate stood at approximately 30%. Under the aforementioned loan agreement, KCC Engineering & Construction committed to taking responsibility for initiating construction within 8 months of the PF loan execution and ensuring project completion within 52 months. "Responsible completion" refers to a promise to complete the building within a set period regardless of issues such as developer insolvency or construction cost payments.
The dispute between the two sides began during the sales process. According to the construction contract for the Haeundae Elmar Switzen officetel, sales-related tasks are to be performed by the developer, Taekwang Development, while the contractor, KCC Engineering & Construction, is expected to cooperate by selecting sales agencies or model house builders. Taekwang Development selected an agency introduced by KCC Engineering & Construction and filed for a pre-sale notice for tenant recruitment around June of last year.
However, the initial pre-sale notice was rejected at the end of June last year due to design (area) issues. Taekwang Development claims that KCC Engineering & Construction began unilaterally interfering with sales operations around the time the initial notice was rejected. A representative for Taekwang Development stated, "KCC Engineering & Construction unilaterally notified us of the sales price and schedule on the very day the pre-sale application was scheduled to be processed. The model house was set to open just one week later, but neither the developer nor the sales agency was prepared," adding, "Even after the district office rejected the pre-sale application, KCC Engineering & Construction demanded we push forward with sales without any design changes." The sales filing was eventually accepted three months later, in September, after design modifications were made.
Taekwang Development claims that KCC Engineering & Construction began hindering sales operations after that point. The Taekwang Development representative alleged, "KCC Engineering & Construction caused obstacles to the sales agency's work by refusing to process commission payments to the initial agency and failing to fulfill promises regarding payment of agency fees," and added, "They were also lukewarm regarding our request to cooperate on changing the down payment from 10% to 5% to boost sales efficiency, which led to a halt in sales work. After we terminated our contract with the initial sales agency, they did not select a successor, leading to a two-month shutdown of the model house operations."
According to Taekwang Development, the current sales rate for the Haeundae Elmar Switzen officetel remains in the 20% range. Following the termination of the first sales agency, the contract with the second agency was also cancelled. It is reported that there is currently no agency handling sales. "Because of KCC Engineering & Construction’s delays in paying sales commissions, the site has been branded in the industry as a place where you don't get paid for your work, making it difficult to find new agencies," the Taekwang Development representative lamented. "We are in a very painful situation as we have to pay 800 million won in PF loan interest every three months."
In response, a spokesperson for KCC Engineering & Construction stated, "KCC Engineering & Construction is currently diligently performing its duties as the contractor for Haeundae Elmar Switzen. We are focused on achieving a successful completion," adding only that "we cannot verify every individual claim made by the developer."