"Avoiding 2-Year Actual Residence Requirement"... Lining Up to Catch the Last Train for Reconstruction

Complexes Slow to Proceed with Projects After Passing Safety Inspections
Busy Moves to Avoid 6·17 Regulations
Gaepo Jugong 6 and 7 Complexes Plan to Apply for Union Establishment Within the Year

[Asia Economy Reporter Onyu Lim] "There is a growing sense of crisis that if the application for the establishment of the association is not submitted within this year, the reconstruction project may be canceled." (Official from the Gaepo Jugong 6 and 7 Complex Reconstruction Promotion Committee)

Reconstruction complexes that had been stagnant despite passing safety inspections are now accelerating their projects. This is because, to avoid the strengthened reconstruction regulations under the June 17 real estate measures, including the two-year mandatory residence requirement, the application for association establishment must be completed within this year. The regulations are acting as a catalyst, and it is expected that associations will be established one after another in Gaepo-dong Jugong 6 and 7 Complexes in Gangnam-gu, Burim-dong Jugong 8 and 9 Complexes in Gwacheon, and Sinbanpo 2nd Complex in Jamwon-dong, Seocho-gu.

According to the real estate industry on the 3rd, Gaepo Jugong 6 and 7 Complexes recently elected a new promotion committee chairman after more than a year of vacancy and are actively seeking consent for the application to establish the association. The Gaepo Jugong 6 and 7 Complexes are mid-rise apartments with 15 floors, and because they had relatively high existing floor area ratios, the project progress was slower compared to surrounding low-rise apartments.

This complex is subject to the maintenance district sunset clause and can apply for association establishment until February next year, but the promotion committee decided to advance the schedule to within this year. This is because, under the June 17 measures, to obtain the right to purchase a reconstruction apartment, owners must have resided for a total of two years or more from the start of ownership to the time of applying for the association member’s purchase. The government plans to revise the Urban and Residential Environment Maintenance Act by the end of the year to prevent 'gap investment,' where reconstruction complexes are purchased with jeonse (long-term deposit lease).

The problem is that if such residence obligation regulations are applied, the momentum for reconstruction projects will inevitably weaken significantly. Owners who do not meet the residence requirement will not qualify to apply for new apartment purchases and will be subject to cash settlement. The industry is concerned that this will make it difficult to meet the resident consent rate.

For this reason, even early-stage reconstruction complexes at the promotion committee stage are moving busily to establish associations. This is similar to the atmosphere when Sinbanpo 3rd and Gyeongnam in Seocho-gu, and Miseong and Clover in Songpa-dong, Songpa-gu hurried to apply for management disposition plan approval ahead of the implementation of the reconstruction excess profit recovery system. A real estate agent in Gaepo-dong explained, "There were homeowners opposing reconstruction in Gaepo Jugong 6 and 7 Complexes due to reasons such as unit allocation, but the government regulations have given the promotion committee grounds to persuade them."

The Burim-dong Jugong 8 and 9 Complexes in Gwacheon, Gyeonggi Province, also seem to be catalyzed by the introduction of the residence obligation. This complex, which received promotion committee approval last May, is accelerating the project by announcing the selection of maintenance business operators after the June 17 measures. The current consent rate for association establishment is reported to be around 55%. The promotion committee plans to achieve 77% by the end of October and apply for association establishment by the end of November. A promotion committee official from Gwacheon Jugong 8 and 9 Complex said, "There is a flood of inquiries from owners regarding the two-year residence requirement, so we believe we can achieve the consent rate." In fact, it is known that the submission of consent forms from owners of the 9th Complex, which had a low consent rate, has noticeably increased after the June 17 measures.

Samik Mansion in Myeongil-dong, Gangdong-gu, has also recently formed a promotion committee to establish an association, and Sinbanpo 2nd Complex in Jamwon-dong, Seocho-gu, is expected to avoid reconstruction regulations. A Sinbanpo 2nd Complex promotion committee official said, "We will hold the association establishment general meeting next month and plan to complete the association application as early as September." However, complexes in the early stages of the project, such as the new town apartments in Mok-dong, Yangcheon-gu, which have not even passed safety inspections, are worried about prolonged project delays.

An industry official said, "Many reconstruction promotion complexes have small areas and poor living conditions, making actual residence difficult," and assessed, "Whether or not the application for association establishment approval is submitted within this year could be a turning point for the projects of major reconstruction promotion complexes in Seoul."