[6·17 Real Estate Measures] Stronger Measures Coming... 'Jaechohwan' to Fully Launch in the Second Half

Government "Full-scale Collection of Reconstruction Charges"
Implementation Scheduled from Second Half

Up to 700 Million KRW per Person in Gangnam
Issues Remain with Price Assessment at End Point

[Asia Economy Reporter Lee Chun-hee] The government's June 17 real estate measures also include a full-scale implementation plan for the reconstruction excess profit recovery system. Starting in the second half of the year, the government plans to fully enforce the recovery system and impose stringent regulations on redevelopment projects.

The government intends to begin full-scale collection from the second half of this year following the Constitutional Court's ruling at the end of last year that the reconstruction excess profit recovery system is constitutional. Collections will start with Hanam Yeonrip in Hannam-dong, Yongsan-gu (average 55.44 million KRW per person) and Doosan Yeonrip in Cheongdam-dong, Gangnam-gu (average 6.34 million KRW per person), where payments were delayed due to ongoing lawsuits despite the imposition of charges. The plan is to continue recovering the estimated charges amounting to 253.3 billion KRW from 62 associations that have already been notified of their expected charges.

The average charge per association member is expected to reach up to 713 million KRW in Gangnam. According to a simulation released by the Ministry of Land, Infrastructure and Transport (MOLIT) targeting eight complexes in Seoul and Gyeonggi areas, the average charge for five complexes in Gangnam was calculated to be between 440 million and 520 million KRW. Some complexes showed an average charge per member as high as 713 million KRW. This is somewhat lower than the highest 840 million KRW per person disclosed by MOLIT for some Gangnam complexes when the excess profit recovery system's grace period ended in 2018.

An MOLIT official explained that this simulation was "calculated as conservatively as possible." If additional factors such as housing price increases at the project completion stage occur, the charges could increase further.

Currently, excess profit is calculated by subtracting the housing price at the start of the reconstruction project (starting point housing price) from the housing price assessed after reconstruction completion (ending point housing price), considering normal housing price increases and development costs.

However, although the system will be fully implemented from the second half of this year, there are still criticisms that the system remains insufficient. While the government announced improvements such as applying the same official price ratio to housing prices at the starting and ending points when calculating reconstruction charges, it is said to overlook the very issues that were pointed out as problems.

Among these, regarding the price calculation at the project completion stage, not only the unreasonable calculation of official prices caused by differences in official price ratios but also the increase in burden on association members due to the combination of general sale housing prices and small housing acquisition prices have been criticized. However, the current measures only improve the method of calculating official prices. Kim Heung-jin, Director of the Housing and Land Office at MOLIT, stated, "Since the calculation of profits obtained by the association at the project completion stage includes general sale housing and small housing acquisition prices, no separate system improvement is being considered."

The starting point for charge calculation is also problematic. In principle, the starting point is based on the approval date of the reconstruction promotion committee, but if the project is prolonged after approval, the starting point is considered to be 10 years before completion. Given the nature of redevelopment projects, where prolonged projects due to conflicts among residents or administrative approval issues are common, fairness controversies inevitably arise. For example, Eunma Apartment in Daechi-dong, Gangnam-gu, a representative reconstruction apartment, received promotion committee approval in 2003 but has yet to establish an association. This leads to complaints that the housing price at the starting point depends largely on 'luck.'

The rate of increase is also an issue. If not only the subject complex but also surrounding housing prices have surged, a significant portion of the excess profit is reduced. However, the index used in this case is the Korea Real Estate Board index, which tends to conservatively evaluate housing price increases, specifically the "city/county/district housing sales price index." Since it includes villas and detached houses, which generally have smaller price increases than apartments, and covers a wide area such as the entire district, the rate of increase is likely to be reflected lower.

Looking at actual transaction prices, for example, Banpo Jugong Complex 1, 3rd section in Banpo-dong, Seocho-gu, one of the complexes expected to be subject to the reconstruction excess profit recovery system, the actual transaction price of a 72.51㎡ (exclusive area) unit, which was in the 1 billion KRW range in January 2014, soared to 2.1 billion KRW last month, nearly doubling. Similarly, the 84㎡ unit in the same neighborhood's 'Raemian Prestige' rose from the 1.3 billion KRW range to 2.85 billion KRW as of the 10th of this month, showing a similar rate of increase. However, during the same period, Seocho-gu's monthly housing sales price index rose only 20.8%, from 90.0 to 108.7.