Despite the government’s move to “relax various regulations related to reconstruction and redevelopment,” the market is ‘frozen’

尹 “Reexamination of maintenance project procedures from the beginning”
Expected relaxation of safety diagnosis standards for reconstruction, etc.
Union members who are faced with a double burden ‘just sigh’

The government is considering ways to ease various regulations related to maintenance projects such as redevelopment and reconstruction. While measures such as easing safety inspections that check the deterioration and safety of reconstructed complexes and lowering the consent rate for redevelopment residents are being discussed, landlords and investors who own reconstructed apartments are drawing attention by showing a lukewarm response.

Ministry of Land, Infrastructure and Transport plans to announce plans to ease maintenance business regulations in January

According to the real estate industry on the 5th, President Yoon Seok-yeol said in his New Year’s address on the 1st, “We will reexamine the reconstruction and redevelopment project procedures from the beginning, and through this, we will speed up the project.” Following the visit to the site of the small-scale housing maintenance project (Moa Town) in Junghwa 12-dong, Jungnang-gu, Seoul on December 21 last year, the company once again strengthened its determination to ease regulations on maintenance projects.

After President Yoon’s remarks, the Ministry of Land, Infrastructure and Transport immediately took action. The plan being prepared by the Ministry of Land, Infrastructure and Transport to rationalize the maintenance project process and ease regulations is expected to include easing the safety diagnosis standards to check the deterioration of the reconstruction complex, as well as lowering the minimum resident consent rate required for redevelopment.

The ‘Special Act on the Maintenance and Support of Aging Planned Cities’, including the first new towns developed over 30 years ago, such as Bundang, Ilsan, and Pyeongchon, is also scheduled to be implemented in April when it passes the National Assembly. This bill, which stems from the judgment that rapid and wide-scale development is difficult in the current legal system and that systematic management of migration demand is difficult, designates residential land exceeding 1 million ㎡ as a ‘special development zone’ 4 years after the completion of the housing site development project, and designates it as a ‘special development zone’ at the city level. The main focus is on promoting maintenance projects.

The industry responded positively. The expectation is that if various regulations are relaxed, business will speed up and profitability will be maximized. Lee Eun-hyung, a researcher at the Korea Construction Policy Institute, predicted, “If regulations related to urban redevelopment projects are eased, construction companies will see positive effects in many aspects, including profitability.”

However, maintenance project union members, who can be said to be the ultimate beneficiaries of the maintenance project, showed a lukewarm response. A member of a reconstruction complex in Seoul said, “I remember when President Yoon took office, an atmosphere was created as if reconstruction would begin at a rapid pace at any moment.” He added, “Expectations were so high, but the pace of the project was still slow and the burden only increased.” He complained. Some even suggest that it would be better to target subscriptions to sell new apartments.

The reason union members react so indifferently to the government’s moves is that the burden of various costs incurred in carrying out the project has snowballed. It is pointed out that although easing related regulations may help create a better business environment, it will not lead to easing the burden of financing. An industry insider said, “In recent years, there have been a series of cases where unions and construction companies are having conflicts over construction costs.” He added, “As the number of complexes where projects are not carried out smoothly due to conflicts over construction costs is increasing, the union members are wondering how much they can bear in terms of funds. “It will determine the success or failure of the business,” he said.

Union members faced the double burden of soaring construction costs and hundreds of millions of won worth of resumption

Up until the early 2010s, maintenance projects mainly involved the government supporting residents’ relocation costs and the construction companies in charge of construction covering initial construction costs, expecting huge development profits. Representative examples include Raemian Seocho Jamwon, which rebuilt Daelim Apartments in Jamwon-dong, Gangnam-gu, Seoul, e-Pyeonhansesang Gyeongbok in Nonhyeon-dong, and e-Pyeonhansesang Banpo Hanshin in Banpo-dong.

However, starting in the 2020s, construction costs have risen sharply and such cases have become difficult to find. According to the Korea Institute of Civil Engineering and Building Technology (KICT), the construction cost index (11 = 2015) in November last year was 100, a 153.37% increase compared to November 3 (2020), three years ago. The construction cost index represents changes in the price of direct construction costs of various resources used in construction. As construction costs soared, the burden on union members also increased. In the case of Sanggye Jugong 11 Complex in Nowon-gu, which is currently undergoing reconstruction, the contribution that union members must pay to receive exclusive 120.2㎡ for reconstruction was estimated to be up to 27.6 million won, attracting attention.

The reconstruction excess profit recovery system (refund) is also pointed out as the main culprit in increasing the burden on union members. At the end of last year, an amendment to the ‘Act on Recovery of Reconstruction Excess Profits’, which included increasing the exemption from repurchase charges to 8,000 million won, passed the plenary session of the National Assembly, but it is pointed out that there has been no significant change in the burden felt by union members. According to the National Reconstruction Project Association, the Yeongtong District 2 reconstruction complex in Suwon-si, Gyeonggi-do has a relocation fee of 2 million won per household, and the Yongmun-dong reconstruction complex in Daejeon is 9,500 million won. The initial exchange fee was also found to exceed at least ‘hundred million’.

Little perceived effect, increasing number of union members considering liquidation in cash

Due to this situation, in some redevelopment complexes, union members are even found to be giving up on selling and moving in. The reconstruction price of Samik Beach Town in Namcheon District 2, which is considered a representative reconstruction complex in Busan, was estimated at 84 million won based on 17㎡. In order for a union member who already owns 935㎡ to receive an apartment with the same area, he or she must pay 84 million won in construction fees. It was reported that many union members were concerned about the cash liquidation procedure as the reinstatement fee was added. The unreasonable implementation of reconstruction projects has led to residential instability.

An official at a nearby real estate office said, “The union members expected a certain level of contribution, but no one would have known it would be this much.” He added, “The sale price of a nearby rebuilt apartment sold five years ago was 5 million won per 3.3㎡, but it has more than doubled.” . He then pointed out, “It is positive that the government is pursuing easing of relocation, but the burden of construction costs is still not resolved.”