Supply Delays and Land Prices Doubling... Landowners Angry Over Daeto Compensation

Government Encourages Land Compensation to Prevent 'Cash Rewards → House Price Rise'
But Supply of Land for Compensation Delayed for Years, Increasing Landowners' Burden
Supply Prices Also Jump by Tens of Millions Based on Appraisal Value
Uncertainty Too High Despite Prior Explanation of Possible Changes

[Asia Economy Reporter Moon Jiwon] Following the government's activation policy, complaints have recently surged mainly among landowners in public housing districts in the Seoul metropolitan area who chose 'Daeto (代土)' compensation instead of cash. This is because cases have emerged where Daeto compensation has been delayed beyond the original schedule due to project completion delays, or where supply prices have more than doubled in two years.

The government is actively encouraging Daeto compensation, which provides land instead of cash to block land compensation money from public development projects from re-entering the real estate market. However, there are criticisms that after contracts are signed, follow-up management is neglected, such as unilaterally adjusting supply schedules and prices. Some landowners are protesting, saying, "If we had known it would proceed like this, we would not have chosen Daeto compensation."

According to the Korea Land and Housing Corporation (LH) and industry sources on the 14th, complaints from landowners about the timing and price of compensation have been continuously reported in the Daeto compensation processes in Goyang Janghang District and Seoul Suseo Station area. Both districts had land compensation implemented by LH in 2018. Daeto compensation is a system that grants owners of land expropriated for public projects the right to purchase other land within the district through private contracts instead of cash.

Daeto Land Supply Price '35 million KRW → 80 million KRW'? ... Landowners Say "LH Tyranny"

According to explanations from some landowners in the Suseo Station area, LH promoted Daeto compensation to landowners in 2018, informing them that Daeto land would be supplied in 2020 according to the project completion schedule, with a supply price set at around 35 million KRW per 3.3㎡. Subsequently, as the perception of profitability spread among landowners, 73% of the total land compensation amount chose Daeto compensation.

When signing Daeto compensation contracts, only the land compensation amount and the intended use of the land to be provided later are determined; the exact supply date and price of the Daeto land are not fixed. However, since landowners need to roughly know when and at what price they can receive Daeto land to assess profitability, LH is known to share expected supply prices during resident briefings and consultations.

However, it has been understood that LH recently planned to supply the Daeto land at about 80 million KRW per 3.3㎡. This price is more than double the amount presented as a guideline to landowners two years ago. For commercial Daeto land, the supply price is determined by multiplying the appraisal value by the average winning bid rate (up to 120%) of land supplied to the general public.

The industry explains that this supply price is difficult to accept even if calculated based on appraisal values. An industry official said, "80 million KRW per pyeong is about 16 times the landowners' expropriation compensation price," adding, "The main reason landowners chose Daeto compensation was to receive inexpensive land through private contracts and secure stable profits, but LH's price increase has eliminated the benefits of choosing Daeto compensation."

A Daeto compensation recipient in the Suseo Station area, Mr. A, said, "The price set by LH is very high compared to surrounding market prices and development costs," and appealed, "LH is pursuing only their own profits and is acting more tyrannically than private companies."

In response, LH dismissed the claim that they presented a 35 million KRW guideline during the 2018 Daeto compensation promotion as just some landowners' assertions. They said that while internally reviewed prices might have leaked, they never officially promoted expected supply prices to landowners. Therefore, LH's position is that the supply price did not increase from 35 million KRW to 80 million KRW.

An LH official said, "We have decided to supply Daeto land within this year to accommodate landowners' complaints about early supply as much as possible, and the appraisal and supply price have been finalized according to relevant laws," adding, "We will continue to consult with landowners and ensure smooth supply within this year."

Expected Supply This Year Delayed by 3 Years... Only Landowners' Burden Increases

The situation is similar in Goyang Janghang District. LH promoted Daeto compensation to landowners in 2018, informing them that Daeto land could be supplied around late 2020 to early 2021 in line with the project completion schedule at the end of 2021. It was reported that about 300 billion KRW, 35% of the total expected compensation amount, would be paid through Daeto compensation in Janghang District.

However, LH recently notified landowners that the project completion schedule in Goyang Janghang District has been delayed, and Daeto land supply will only be possible in 2023. An LH official stated, "Since project completion next year is difficult, we cannot supply Daeto land as originally planned," adding, "We had also informed at the time in 2018 that changes were possible."

Landowners are strongly protesting. If supply is delayed, land prices rise during that period, increasing the appraisal value of the land accordingly. For landowners, the additional burden, which is the difference between the Daeto land price and the land compensation amount, inevitably increases. Landowners who chose Daeto compensation instead of cash compensation and took out loans to cover moving expenses face increased interest burdens if the supply schedule is delayed.

A Daeto compensation recipient in the area said, "If I had known the supply timing would be delayed and the burden would increase, I would not have chosen Daeto compensation." There are also criticisms that the system itself, which proceeds with the schedule and price 'in the dark' at the time of the Daeto compensation contract, is disadvantageous to landowners. An industry official said, "The government needs to present new standards for Daeto land supply timing and prices to activate Daeto compensation in the future."