Decision for Public Development under Roh Moo-hyun... Switched to Private Development after MB's Remarks
Lee Jae-myung, Elected Mayor of Seongnam, Reverts to Public Development
"Hwacheon Daeyu Made Big Money, but It Was Luck"
As the allegations surrounding the Daejang-dong development in Seongnam City, involving Lee Jae-myung, a leading presidential candidate from the Democratic Party of Korea and Governor of Gyeonggi Province, have emerged as a central issue in the political landscape, attention is also turning to the history of the Daejang-dong development.
◆Started as a public development under the Roh Moo-hyun administration... Switched to private development after MB's remarks
The beginning of the Daejang-dong development dates back to 2004, during the administration of the late President Roh Moo-hyun. In April of that year, Seongnam City designated Daejang-dong as a planned urbanization site in its '2020 Urban Basic Plan.' The following year, the Korea Land and Housing Corporation (LH) decided to proceed with Daejang-dong as a public development project, marking the official start of the project.
However, the project, which was confirmed and promoted as an LH public development project, faced a significant change in 2009.
On October 7, 2009, President Lee Myung-bak stated at the LH inauguration ceremony, "LH does not need to compete with private companies," adding, "We need to supplement areas where private companies do not engage because they are not profitable." The next day, October 8, 2009, then LH President Lee Ji-song announced at a press conference, "We will abolish parts that compete with the private sector."
Pressure for private development of Daejang-dong intensified, and in June 2010, LH ultimately decided to withdraw from the public development project of Daejang-dong, citing business restructuring due to financial difficulties.
◆"Corruption-ridden Daejang-dong development" Lee Jae-myung reverts to public development
The Daejang-dong development, which had shifted to private development, reached another turning point. In June 2010, after Lee Jae-myung was elected mayor of Seongnam, he declared his intention to change the Daejang-dong project back to a public development project.
Even before the transition from public to private development, rumors of development plans circulated around the Daejang-dong area in Seongnam City, and speculative forces were rampant. In November 2005, a total of 22 officials and businessmen were caught by the police for illegally purchasing land, aiming to profit from land expropriation compensation.
Lee raised suspicions about the Daejang-dong development being pursued as a private project through his Facebook, Twitter, and media interviews. As corrupt practices were revealed, the private development lost momentum. The Daejang-dong development project was reverted to public development just four months after Lee took office as mayor of Seongnam.
In August 2010, the basic plan for establishing the Seongnam Urban Development Corporation was formulated, and in October, Seongnam City ultimately rejected the private development proposal and adopted the public development method through the Seongnam Urban Development Corporation. After various twists and turns, including conflicts with the Seongnam City Council dominated by the Grand National Party, the Seongnam Urban Development Corporation was launched after about three years in 2014.
Thereafter, the project proceeded smoothly, and in February 2015, the 'Public Notice for Private Business Operator Recruitment for the Combined Urban Development Project of Seongnam Daejang-dong and the First Industrial Complex' was issued. On March 27 of the same year, the 'Seongnam Utddeul' consortium was selected as the preferred negotiation partner for the Daejang-dong development. This was the period when companies such as 'Hwacheon Daeyu' and 'Cheonhwa Dongin,' which have recently been mentioned in connection with the Daejang-dong development allegations, first appeared.
Entrance view of Hwacheon Daeyu, the asset management company suspected of preferential treatment in the Daejang-dong development project in Bundang-gu, Seongnam-si, Gyeonggi Province. ◆Lee Jae-myung's side: "Hwacheon Daeyu did make big money... but it was just luck"
Lee's side evaluates the Daejang-dong development as a 'model public interest project.' They argue that if the project, which was switched from public to private development after MB's influence, had remained private, the private developer would have monopolized 100% of the development profits, but Lee, then mayor, blocked this and reclaimed the profits for public interest.
Lee's side claims, "Lee changed the Daejang-dong development back to public development and reclaimed 550.3 billion KRW in profits for Seongnam City."
The controversy and conflict surrounding Daejang-dong development repeat at this point. Although it appears that Seongnam City reclaimed the development profits, in reality, the special purpose company (SPC) Seongnam Utddeul, including Hwacheon Daeyu, reaped the benefits.
The total investment from seven investors, including the owners of Hwacheon Daeyu and its subsidiary Cheonhwa Dongin, in Seongnam Utddeul, the SPC responsible for the Daejang-dong development, amounts to 350 million KRW. Hwacheon Daeyu and others hold 7% (common shares) of Seongnam Utddeul's shares, with total dividends reaching 404 billion KRW. Meanwhile, the Seongnam Urban Development Corporation, holding 50% (preferred shares), received dividends of 183 billion KRW.
This is due to the project design method. The Seongnam Urban Development Corporation receives a fixed dividend first, and any additional profits go entirely to Hwacheon Daeyu. Lee's side evaluates this design as "minimizing the city's risk through pre-determined profit allocation and securing profits of about 550 billion KRW."
Lee's side also acknowledges that the seven investors, including Hwacheon Daeyu, received huge dividends. They stated, "At the start of the project in 2015, the real estate market was not favorable, and the private sector's expected profit was about 180 billion KRW around March 2015." They added, "Due to the recent surge in real estate prices, profits have greatly increased," and described it as "just luck."
On the 24th, near an intersection close to Seongnam City Hall in Gyeonggi Province, banners with opposing messages related to the Seongnam Daejang-dong development project were hung side by side in the names of a Gyeonggi Provincial Assembly member from the Democratic Party of Korea and a local party committee chairman from the People Power Party.
◆Hwacheon Daeyu controversy escalates from political disputes to lawsuits
The allegations related to the Daejang-dong development are expected to extend beyond political disputes into legal battles.
According to the legal community, on the 20th, nine Seongnam citizens, including Mr. Kim, filed a lawsuit at the Suwon District Court Seongnam Branch seeking to invalidate the dividend resolution against Seongnam Utddeul.
Attorney Lee Ho-seon, representing the plaintiffs, claimed in the complaint, "While the Seongnam Urban Development Corporation, which invested 2.5 billion KRW, received dividends of 183 billion KRW over three years, Hwacheon Daeyu and SK Securities, which invested 350 million KRW, received dividends of 404 billion KRW."
The defendant argued, "Preferred shareholders who invested more than seven times the amount of common shareholders did not even receive half (0.45 times) of the dividends of common shareholders. Such an unreasonable dividend resolution violates laws and is null and void."
Earlier, in December last year, 38 original residents of Daejang-dong, and in August last year, another five residents filed lawsuits against Seongnam Utddeul seeking recovery of unjust enrichment.
They argue that while the land was expropriated at compensation rates lower than market prices under the guise of public development, the private company Seongnam Utddeul made enormous profits, which they cannot accept.
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