Should We Remodel Instead of Rebuilding? ... Easing Load-Bearing Wall Standards as a Turning Point

[What Do You Think]
Reconstruction Regulations Tighten While Remodeling Rules Ease
Limited Impact on House Prices but Relatively Faster Pace and Fewer Restrictions
However, Remodeling Popularity Remains Low with Only One Site Under Construction
Decision on Load-Bearing Wall Relaxation Expected This Year... Attention on Ministry of Land, Infrastructure and Transport

(Photo by Yonhap News)

[Asia Economy Reporter Moon Jiwon] Recently, interest in remodeling has been rising again as the amendment to the Housing Act, which includes measures to revitalize remodeling, passed the National Assembly plenary session. While regulations related to reconstruction, such as the excess profit recovery system and the pre-sale price ceiling system, continue to be strengthened, regulations on remodeling are being continuously eased.

However, there is still an analysis that it is difficult for apartment remodeling to become a short-term hit because people's perspective on maintenance projects is focused on 'asset value increase.' It is expected that the remodeling market can gain more momentum only if measures such as easing the load-bearing wall standards, which can increase the profitability of remodeling, follow.

◆Although the effect on house price increase is small, promotion is faster... capital gains are also expected = According to the industry on the 27th, remodeling is a construction method that improves the residential environment by leaving only the basic framework of an apartment building that is over 15 years old and vertically and horizontally extending it. Compared to reconstruction, which involves building a new building, the effect on house price increase is smaller, but the promotion speed is relatively faster than reconstruction. If the surrounding infrastructure is good, owners can expect some capital gains even if they pay several hundred million won in contributions.

According to the recently passed amendment in the National Assembly, remodeling associations can receive approval for business plans without securing 100% ownership of the project site as long as they obtain consent from 75% of the owners. This means that the speed of remodeling projects is likely to accelerate further. A representative from a major construction company said, "It is a government signal to continue encouraging remodeling," and added, "There will likely be more deregulation in the future."

In fact, nearly 500 owners gathered at the remodeling briefing session for Jayang Woosung 1st Apartment held at Sunrin Presbyterian Church in Gwangjin-gu, Seoul, on the 11th. They carefully examined the risks and benefits of promoting remodeling while listening to the project plans presented by Lotte Construction, which hosted the briefing.

Remodeling can be a good alternative when reconstruction is not profitable due to high floor area ratio or when reconstruction is difficult due to locational restrictions. A representative from the Jayang Woosung 1st remodeling promotion committee said, "Perhaps due to recent government regulations, the number of residents opposing reconstruction while advocating for it has significantly decreased."

Unlike reconstruction and redevelopment, another advantage of remodeling is that there are no restrictions on transactions. In the case of reconstruction conducted in speculative overheated districts such as Seoul, the transfer of association member status is prohibited from the approval of association establishment until the registration of ownership transfer, effectively restricting transactions. However, transactions are free throughout all stages of remodeling projects.

Considering that apartment prices generally rise as procedures such as association establishment, business plan approval, and construction progress, owners can participate in the project with less risk than reconstruction.

◆Despite continuous deregulation, clear limits... easing load-bearing wall standards is a turning point = However, the dominant analysis in the industry is that the remodeling market is unlikely to be rapidly revitalized despite the amendment to the Housing Act. This is because Korea still views maintenance projects more from the perspective of asset value increase rather than residential environment improvement.

Ham Youngjin, head of the Zigbang Big Data Lab, said, "Remodeling cannot become a mainstream maintenance project model because it cannot do much general sale (15% of existing households) and has many construction restrictions," adding, "There will not be many cases switching from reconstruction to remodeling."

In fact, the only apartment complex currently undergoing remodeling construction nationwide is Gaepo Woosung 9th Apartment in Gaepo-dong, Gangnam-gu, which started construction in March last year. Therefore, it is analyzed that measures to increase profitability, such as easing load-bearing wall standards, are necessary for remodeling to be revitalized.

Seo Jeongtae, chairman of the Jayang Woosung 1st remodeling promotion committee, said, "If the demolition of load-bearing walls between units is allowed, the design becomes infinitely flexible with square-shaped houses," adding, "It is necessary to ease the load-bearing wall standards while strengthening standards for vertical extensions, showing flexibility."

However, the Ministry of Land, Infrastructure and Transport, which is reviewing whether to allow the demolition of load-bearing walls, is delaying the announcement of the results repeatedly. It is interpreted that they are cautious because easing the standards could lead to house price increases, while maintaining the current standards could worsen public opinion.

A Ministry of Land official said, "The demonstration experiment by the Korea Institute of Civil Engineering and Building Technology, which was originally scheduled to end last year, has not yet been completed," adding, "We will complete the service in the first half of this year and announce the results after internal review and expert consultation."