Outline of Public Reconstruction Emerges... 'Aljja' Excluded

Presentation of Business Consulting Results
Most of the 7 Applied Complexes Are Peripheral and Small-scale

Few Core Areas Like Large Gangnam Complexes
Limitations Pointed Out Due to Lack of Proper 'Incentives'

A view of Eunma Apartment in Daechi-dong, Gangnam-gu. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Lee Chun-hee] The actual effects of the public reconstruction project, which the government announced would supply 50,000 households by 2028, have begun to take shape.

According to the Public Maintenance Integrated Support Center, which supports public reconstruction and redevelopment projects, as of the 15th, only seven complexes have participated in the preliminary consulting for public reconstruction. This contrasts sharply with the public redevelopment, which attracted as many as 70 official applications. The target complexes and districts include ▲Shinbanpo 19th Complex in Seocho-gu ▲Mangu 1 District in Jungnang-gu ▲Junggok Apartment in Gwangjin-gu ▲Singil 13 District in Yeongdeungpo-gu ▲Miseong Geonyeong in Gwanak-gu ▲Gangbyeon and Gangseo in Yongsan-gu, among others. One complex requested confidentiality.

The Integrated Support Center explained that, based on the preliminary consulting results, the floor area ratio and the number of households for the seven complexes are expected to increase by an average of 96 percentage points and 19%, respectively, compared to the existing plans. They added that the members' contribution fees will also decrease by 37% compared to the existing plans. Additionally, a separate simulation analysis for large complexes with over 1,000 households was disclosed. Under the existing floor area ratio of 300%, the planned supply was 1,410 households, but assuming a floor area ratio of 500%, it increases to 2,240 households.

At a floor area ratio of 300%, the donation portion was 11% (160 households), which increases to 33% (730 households) when applying 500%. However, the general sale portion also more than doubles from 250 households to 510 households, resulting in an estimated proportional rate rising by 27.2 percentage points from the existing 84.9% to 112.1%. The proportional rate is an indicator representing the profitability that can be obtained through maintenance projects, and it is generally accepted that a rate exceeding 100% indicates high project feasibility.

Simulation Analysis Results of Public Reconstruction for Existing 1,000-Household Complex (Data=Public Maintenance Integrated Support Center)

However, the response from large complexes in the Gangnam area, which still hold the key to supply expansion, remains lukewarm. Although incentives such as increased floor area ratio or zoning upgrades are provided, unlike public redevelopment, there are no drastic incentives such as exemption from the sale price ceiling system. There are concerns that if rental units increase, the value of the complexes will decline accordingly.

The fact that higher density inevitably worsens the residential environment is also an obstacle. Additionally, resistance remains due to the public sector participating as the project entity in what is otherwise a purely private reconstruction project. The industry views the withdrawal of major large complexes such as Eunma in Daechi-dong, Gangnam-gu (4,424 households), Jugong 5 Complex in Jamsil-dong, Songpa-gu (3,930 households), and Miju in Cheongnyangni-dong, Dongdaemun-gu (1,089 households), which initially expressed intentions to participate in preliminary consulting, as a result of such opposition. In the case of Eunma Apartment, the promotion committee is conducting a survey again to ask about participation in preliminary consulting, but it is known that opposition opinions are overwhelmingly dominant.

Lee Eun-hyung, Senior Researcher at the Korea Construction Policy Institute, analyzed, "Without strong incentives such as the relaxation of the reconstruction excess profit recovery system and the sale price ceiling system, it will be difficult to persuade the owners."