Ahead of Mandatory Ratio Increase on 24th
Acceleration of Hannam 2 District Project Implementation Approval Process
Current 15~20% → Up to 30%
Urgent Issue for Each Project Site
[Asia Economy Reporter Lee Chun-hee] As the mandatory supply ratio of rental housing in redevelopment projects is scheduled to increase starting from the 24th, major redevelopment associations in Seoul are accelerating their applications for project implementation approval.
According to industry sources on the 21st, Hannam 2 District in Yongsan-gu held a temporary general meeting of association members on the afternoon of the 19th and approved the application for project implementation approval. Based on the results of the general meeting, the association plans to apply for project implementation approval to Yongsan-gu Office within this week. Hannam 2 District is a redevelopment site covering 82,821㎡ around 272-3 Bogwang-dong. A total floor area of 336,940㎡ will accommodate 1,537 apartment units.
Initially, the industry expected that Hannam 2 District would find it difficult to apply for project implementation approval this month since it only passed the architectural review last month. However, Hannam 2 District accelerated the project and successfully completed the related procedures in just over a month. Despite the spread of COVID-19, Hannam 2 District held a general meeting and quickly pushed forward the project due to the revised Enforcement Decree of the "Urban and Residential Environment Improvement Act" effective from the 24th.
The amendment, passed at the Cabinet meeting in June, includes raising the upper limit of the mandatory rental housing ratio in redevelopment projects to a maximum of 30% for the metropolitan area. This is the maximum limit set by law. Currently, the maximum ratio is set at 20%, which is lower than the legal upper limit. The basic mandatory ratio is within 15%, with an additional 5 percentage points possible at the discretion of local government heads. Based on this law, Seoul currently requires most redevelopment projects to supply rental housing at a level of 15-20%. The current rental housing ratio in Hannam 2 District is 238 units out of 1,537, or 15.5%.
However, the basic mandatory ratio will be expanded to 20%. Additionally, if there are many tenants in the area or housing supply stability is needed, an additional 10 percentage points can be added. Accordingly, for redevelopment projects in the metropolitan area, the mandatory rental housing ratio could increase up to 30% when including the discretionary ratio.
However, this increase in the rental housing ratio applies only to projects that apply for project implementation approval after the new enforcement decree takes effect. Seoul City has stated that it will not uniformly apply the 30% ratio because some projects might be abandoned due to deteriorating profitability, but it does not deny the possibility of an increase in the ratio.
For projects currently proceeding with a rental housing ratio of 15-20%, this situation inevitably causes urgency. Increasing the rental housing ratio to 30% without increasing the total number of units raises concerns about profitability deterioration. A redevelopment association official said, "The purpose of redevelopment projects is to improve areas with poor living conditions, but if 30% of the units are rental housing, it will obviously be difficult to proceed with the project."
Earlier this month, Heukseok 11 District in Dongjak-gu and Bulgwang 5 District in Eunpyeong-gu also held temporary general meetings on the 2nd and 6th, respectively, to approve their project implementation plans. Both associations successfully approved their applications. Heukseok 11 District reportedly applied for project plan approval to Dongjak-gu Office on the 18th, and Bulgwang 5 District is expected to submit its application to Eunpyeong-gu Office on the 22nd.
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