'House Price'... The Reality of Multi-Billion Won Burden Fees Fear

Start of Full-Scale Collection Including Enforcement Decree Revision
12 Locations in Seoul Notified... Maximum 50.2 Billion KRW
Banpo Hyundai 135.69 Million KRW per Household

Gangnam Area A Complex Simulation Shows Over 800 Million KRW per Household
Possibility of Suspension of Some Reconstruction Projects

[Asia Economy Reporter Choi Dong-hyun] The fear of multi-billion won 'burden charges' is becoming a reality for reconstruction complexes in the Gangnam area of Seoul. This is because the government has begun to revise related regulations such as enforcement ordinances following the constitutional court's ruling on the constitutionality of the Reconstruction Excess Profit Recovery System and has started full-scale collection of burden charges. With the increase in holding tax burden due to rising official property prices, homeowners are already facing higher tax burdens, and if they have to bear burden charges worth billions of won per household, concerns about project delays and supply disruptions may arise.

According to the industry on the 3rd, the Ministry of Land, Infrastructure and Transport (MOLIT) has currently notified estimated excess profit burden charges to about 60 reconstruction project sites nationwide. MOLIT does not disclose detailed information on estimated burden charges by region or complex, citing that the estimated amount may differ from the final confirmed amount and premature disclosure could cause market confusion, but the total estimated amount is understood to reach 250 billion won. The estimated burden charge is notified within one month by the local government after the reconstruction association, which has received project implementation approval, submits related documents such as estimated construction costs within three months. This is a procedure to estimate costs in advance before the actual burden charge is notified within four months from the completion date.

◆ Banpo Hyundai likely to become the first complex with 'hundreds of millions won' burden charge = According to our investigation, in Seoul, estimated burden charges have been notified to 12 reconstruction project sites so far. Among them, the highest estimated burden charge per person is at the former Banpo Hyundai Apartment (now Banpo Centreville) in Banpo-dong, Seocho-gu, amounting to 135.69 million won per person (total 10.9 billion won). This is nearly double the 71.57 million won per person estimated by the Banpo Hyundai association itself. A representative of the Banpo Hyundai association said, "It is already tight to pay association member contributions and holding taxes, so having to pay an additional burden charge of several tens of millions of won per person is unreasonable," adding, "If the actual burden charge is decided at this level, we will have no choice but to take collective action."

The project with the highest total estimated burden charge is the reconstruction in Munjeong-dong 136, Songpa-gu. This project received a notification of 50.24 billion won, with a per-person burden of 60.74 million won. Other sites such as Yeonhui Villa in Gusan-dong, Eunpyeong-gu (7.7 million won), Jayang Apartment in Jayang-dong, Gwangjin-gu (3.2 million won), and Sinseong Villa in Bangbae-dong, Seocho-gu (27.45 million won) have also been notified of estimated burden charges ranging from several million to tens of millions of won per person.

However, so far, only five sites in Seoul have actually been charged with reconstruction excess profit burden charges. These are projects that took place before the government's burden charge deferral measure in 2012. Among them, three sites have completed payment, but Hanam Yeonrip in Hannam-dong, Yongsan-gu, and Doosan Yeonrip in Cheongdam-dong, Gangnam-gu, have postponed payment due to constitutional complaints. The per-person burden charge is 55.44 million won for Hanam Yeonrip and 6.34 million won for Doosan Yeonrip. MOLIT plans to complete the collection of burden charges for these complexes within the year, as the excess profit recovery system was ruled constitutional at the end of last year. MOLIT announced a legislative notice for the 'Amendment to the Enforcement Decree of the Reconstruction Excess Profit Recovery Act and the Recovery Work Handling Guidelines,' which revises the evaluation indicators for distributing the state's share of reconstruction burden charges to local governments for the operation of recovered funds.

MOLIT expects to collect burden charges from Yeonhui Villa and Banpo Hyundai in 2021 as well. A MOLIT official explained, "After completion, if the association submits documents following an audit of association operating expenses within one month, the local government must notify the burden charge within three months," adding, "If the burden charge is considered unfair, an objection can be filed within 50 days."

◆ Concerns over project suspension due to burden charges exceeding the price of a house = The problem is that the shock of burden charges will be fully felt in Gangnam reconstruction projects, where the project scale ranges from hundreds of billions to trillions of won. A representative project is Banpo Jugong Complex 1, 3rd section (Banpo 3rd section) in Banpo-dong, Seocho-gu, which recently selected Samsung C&T as the contractor. The Banpo 3rd section association must submit estimated burden charge-related documents to the local government within one month after signing the main contract with Samsung C&T.

The industry expects the burden charge per Banpo 3rd section association member to reach several hundred million won. In fact, when the excess profit recovery system was reinstated in 2018, MOLIT's own simulation showed that the highest per-person burden charge among reconstruction complexes in Seoul was up to 840 million won. At that time, the market speculated that this complex was Banpo 3rd section.

For Banpo 1st, 2nd, and 4th sections, which are currently undergoing lawsuits to cancel management disposition approval, some believe that if the approval is canceled in the final trial and burden charges are imposed, the per-person burden could reach 1 billion won. Banbae Samik in Bangbae-dong, Seocho-gu, which recently selected Daelim Industrial as the contractor, is also expected to receive estimated burden charge notifications soon. Additionally, Eonma Apartment and Jamsil Jugong Complex 5, representative reconstruction complexes in Gangnam, are expected to bear burden charges of several hundred million won per person.

Some projects may even halt reconstruction. In fact, some complexes such as Daechi Ssangyong 2nd in Daechi-dong have effectively stopped their projects due to the burden charges. The establishment of the promotion committee for Gaepo Jugong Complexes 5, 6, and 7 in Gaepo-dong has been delayed by more than a year, and recently, the emergency countermeasure committee of complexes 6 and 7 requested the Seoul city government to revoke the maintenance zone designation. In some complexes, association heads have been dismissed or reported due to failure to avoid burden charges.

Professor Kwon Dae-jung of Myongji University Graduate School of Real Estate said, "If the excess profit recovery system is applied along with the price ceiling system, there is a possibility that reconstruction will be abandoned altogether in favor of alternatives such as remodeling," adding, "This could lead to price increases due to reduced supply."