LH, Transition to a Holding Company System?…Government to Hold Public Hearing on Organizational Restructuring on the 28th (Comprehensive)

'Jugeo Bokji' Parent Company Likely to Vertically Separate 'Land + Housing Business' Subsidiary

[Asia Economy Reporter Kangwook Cho] The government will hold a public hearing to gather opinions on the organizational restructuring plan of Korea Land and Housing Corporation (LH). It is known that the government is focusing on transitioning LH into a holding company structure and creating and operating subsidiaries that maintain the integration of the land and housing sectors.

According to the Ministry of Land, Infrastructure and Transport on the 27th, the government will hold an online public hearing on the 28th at 2 p.m., broadcast live on YouTube, to collect opinions on the LH organizational restructuring plan. This is a follow-up measure to the LH innovation plan announced on the 7th of last month.

At that time, the government stated that it would make a decision after sufficient opinion gathering and in-depth review, considering the various opinions presented regarding the LH organizational restructuring. The government prepared an LH innovation plan, including transferring the investigation of public land sites such as new towns from LH to the Ministry of Land, Infrastructure and Transport and reducing 20% of the total staff, but the core organizational restructuring plan was not concluded despite two rounds of party-government consultations.

The LH organizational restructuring plan under discussion this time centers on three alternatives that separate the functions of land, housing, and residential welfare. The three options are: ΔOption 1, parallel separation of the housing and residential welfare sector and the land sector; ΔOption 2, parallel separation of the residential welfare sector and the housing and land sectors; ΔOption 3, vertical separation with the residential welfare sector as the parent company and the housing and land sectors as subsidiaries.

Option 1 separates land and housing/residential welfare. It is similar to the integration of the Housing Corporation and Land Corporation in 2009, separating housing and land. While positive in terms of organizational stability and strengthening public interest, it is evaluated as insufficient in restoring checks and balances over the land sector, which was the cause of speculative incidents. There are also concerns that separating the housing and land sectors could disrupt the implementation of new projects such as the 2·4 Supply Plan.

Option 2 separates residential welfare and housing/land in parallel. Residential welfare is separated, but the integration of housing and land is maintained. Integration of residential welfare and the LH subsidiary, the Housing Management Corporation, is also considered if necessary. This option is favored by members due to organizational stability by maintaining the housing and land sectors, but it is criticized for maintaining concentrated authority in the housing and land sectors, limiting checks and balances.

Option 3 separates residential welfare as a parent company and maintains the integration of housing and land as subsidiaries. It involves establishing a holding company and splitting LH into two to three subsidiaries. The government initially proposed Option 3 as the leading organizational restructuring plan.

While the housing and land sectors are under the control of the parent company, allowing for strengthened oversight, there is an evaluation that supplementary measures are needed to ensure the parent company’s actual control power. The Ministry of Land, Infrastructure and Transport’s own evaluation gave it a total score of 8.5, ranking it ahead of the other two options and making it the most likely plan.

In Option 3, the parent company is tasked with overall business planning coordination and establishing a compliance monitoring committee to supervise subsidiaries, thereby enhancing management functions. Important management matters of subsidiaries, such as business plan formulation, articles of incorporation amendments, executive appointments and dismissals, and dividends, must be reported to and approved by the parent company’s board of directors.

Although Option 3 was initially considered by the government, worsening public opinion led to a strong trend within the ruling party to completely separate LH’s functions and reform it to a level close to dismantlement, resulting in no agreement between the party and government.

The government plans to promptly prepare the best organizational restructuring plan to restore checks and balances in LH’s organization and to respond smoothly to changes in policy conditions such as the increasing demand for residential welfare.

A Ministry of Land, Infrastructure and Transport official said, "Considering the opinions presented at the public hearing, we will finalize the LH organizational restructuring plan as soon as possible and ensure that related bills can be discussed in the regular National Assembly session."