“Redevelopment is freely possible, officetel taxes are relaxed” Yoon Seok-yeol’s government’s ‘bomb mitigation plan’

Establishment of ‘safety diagnosis fast track’ for old apartments, lowering barriers to maintenance
“Stimulate the market” Significantly strengthened tax benefits for non-apartments such as officetels
After the economic recovery, there are concerns about a surge in prices, and some question the effectiveness of the memorandum

More than 30 years since completion old apartment The ‘safety diagnosis barrier’ is broken down. On the 10th, the Ministry of Land, Infrastructure and Transport announced a ‘Plan to expand housing supply and supplement the construction economy to stabilize the people’s housing’, which aims to ease regulations on maintenance projects. While numerous relief measures have been poured out, such as △relaxing safety diagnosis △relaxing requirements for redevelopment projects △reducing excess profit charges △relieving non-apartment tax burdens, expectations and concerns about future market changes are mixed in the industry.

Significantly eases barriers to apartment redevelopment

‘Safety diagnosis’ is considered the first barrier to reconstruction projects. This is because complexes that do not meet safety diagnosis requirements have no choice but to change their business method to remodeling or postpone redevelopment projects. In order to lower this barrier to entry, the government decided to introduce a ‘safety diagnosis fast track’ procedure for old apartments that are more than 30 years old. The safety diagnosis fast track is a system that allows full-scale redevelopment projects to begin without a safety diagnosis, and the market interprets this as effectively ‘abolishing safety diagnosis.’

The requirements for redevelopment projects are also relaxed. It was decided to relax the deterioration requirement, which is currently set at more than two-thirds, to 3%, and lower it to 2% when designating a promotion district. Access rate, density, etc. are virtually excluded from project promotion requirements. The government plans to make this plan a reality by revising the Enforcement Decree of the Urban Maintenance Act in April. Experts predict that small-scale individual maintenance projects will become active in the future once redevelopment project requirements, including deterioration, are eased.

A plan to reduce charges related to excess profits from reconstruction was also presented. This is to expand the scope of recognition of costs excluded from excess profits when calculating charges. In addition, the government plans to enable small-scale maintenance projects or urban complex projects in areas where it is difficult to carry out general maintenance projects, and also simplify procedures for small-scale maintenance projects.

The market is noticeably shaken by the unprecedented deregulation. In particular, in Nowon, Gangnam, Gangseo, and Dobong in Seoul, where many workplaces blocked by safety inspection barriers are located, it is said to be an ‘opportunity’ to turn the situation around. The government expects that through this improvement in the maintenance project system, a total of 2027 households will be able to begin maintenance projects by 95. It is estimated that there are approximately 55 households that can be rebuilt in the metropolitan area and 20 in rural areas. In the case of redevelopment, there are 14 households in the metropolitan area and 6 in regional areas.

“Officetel tax relief” declares non-apartment stimulus bombshell

In addition to easing maintenance business regulations, this government bill includes numerous real estate economic stimulus measures. In particular, the mayor is paying attention to a plan to exclude non-apartment houses such as urban living houses and officetels from the number of houses when calculating taxes. When purchasing multi-family houses, villas, urban living houses, residential officetels, etc. with an exclusive area of ​​1 m12 or less (60 million won in the metropolitan area, 6 million won in regional areas) completed from January of this year to December of next year, the government calculates acquisition tax, transfer tax, and comprehensive real estate tax. It was decided to exclude it from the city housing count. However, if an existing homeowner purchases an additional home, the special exception for one home per household does not apply.

The government’s push for such unprecedented tax benefits is interpreted as an attempt to revive the faltering non-apartment market. According to Real Estate R114, the number of officetel occupancies in Seoul this year was 3,703 units, a sharp decline to the lowest in 2011 years since 3,052 (13 units). From January to November last year, the number of villas (rows and multi-family homes) licensed nationwide was 1 households, which is only one-third of the number in 11 (1 households). As the shadow of a recession in the non-apartment market deepens, the industry, which has heard of the government’s easing measures, is expressing full-fledged expectations, saying, “The downtown non-apartment market has gained some breathing space.”

However, some are raising concerns that this ‘unconditional easing’ policy will lead to a surge in housing prices in the future. This is because an environment where there is no burden of holding tax no matter how many officetels are purchased creates ideal conditions for speculation. Experts believe that there is a risk that speculative demand will not only focus on non-apartments in the future, but also that multiple homeowners will be mass produced. It is pointed out that the maintenance project relief measures included in this plan may also lead to unnecessary ‘overdevelopment’ and add to market confusion.

No drastic changes? Some say ‘effectiveness is questionable’

While there is a heated debate over the unconventional relaxation policy, there are also cautious predictions in the industry that the effect of the policy will not be as great as expected. As construction costs continue to rise due to high inflation, maintenance projects cannot be promoted just by easing safety inspections. According to the Korea Institute of Civil Engineering and Building Technology’s ‘Construction Cost Index Trends’, the construction cost index in November last year was provisionally calculated to be 11. This is a 153.37% increase compared to November 2020 (11).

If construction costs rise, redevelopment union members’ contributions also rise. Ultimately, this means that complexes that lack the capacity to raise contributions will find it difficult to progress with their projects even if regulations are relaxed. In fact, even after the relaxation of safety inspection regulations last year, many rebuilt complexes passed the safety inspection, but the progress of the project has been difficult due to rising construction costs. Some also point out that ‘polarization of maintenance projects’ will occur in various parts of Seoul.

There are opinions that non-apartment tax relief measures will also lack effectiveness in a high interest rate situation. The analysis is that unless interest rates fall significantly, demand for unsold houses, villas, and officetels will not recover. In fact, the expected rate of return for income-generating real estate, including officetels, is around 3-5% per year, so the investment merit is small in the current high interest rate situation. As optimism and pessimism clash sharply, related industries are paying close attention to changes in the market.