Fewer Regulations and Faster Than General Reconstruction
Prime Small-Scale Complexes in Seoul Join One After Another
Major Construction Companies Also Interested... Government Support Increasing
As government overlapping regulations surrounding private reconstruction show little sign of easing, market interest in 'small-scale reconstruction' is growing steadily. Compared to general reconstruction, the procedures are simpler and the project progresses much faster, and recent government incentives have also increased, significantly improving profitability. Interest in projects is rising mainly among complexes where it is not suitable to proceed with maintenance projects under existing conditions, and with the increased participation of major construction companies, the trend is gaining momentum.
According to the real estate industry on the 17th, small-scale reconstruction is gaining attention centered on 'standalone apartments' that had not received much attention in maintenance projects until now. Small-scale reconstruction can be promoted in areas with a land area of less than 10,000㎡ and in old row houses or apartments with fewer than 200 households, and is also called 'mini reconstruction.' Although the scale is small, it is classified as a 'niche market' due to relatively fewer regulations.
Advantage of Fast Speed... Major Complexes Participating One After Another
The biggest advantage of small-scale reconstruction is its fast speed. Unlike existing reconstruction projects, it is not subject to the 'Act on Maintenance and Improvement of Urban Areas and Dwelling Conditions,' so procedures such as designation of maintenance areas, safety inspections, and approval of management disposition plans are omitted or processed integrally. Therefore, it is possible to start construction about three years after the establishment of the association, which is advantageous compared to reconstruction projects that take more than 5 to 10 years. Considering the recent significant slowdown in the pace of private maintenance projects due to government regulations and decreased project feasibility, this advantage is further highlighted.
Due to these advantages, the number of complexes interested in small-scale reconstruction is steadily increasing. Gaepo Lucky and Gaepo Woosung 5th in Gangnam-gu, Hannam Shibeom in Yongsan-gu, Gwangjang Samsung 1st in Gwangjin-gu, and Dangsan Hyundai 2nd in Yeongdeungpo-gu are actively promoting projects. Although these complexes are small in scale, they have good locations and decent infrastructure, so as they promote small-scale reconstruction, buying demand is increasing. In Seoul, it is known that more than half of the approximately 60 small-scale reconstruction project sites have completed association establishment approval.
As market interest grows, participation of large construction companies in small-scale reconstruction, which was previously considered the domain of mid-sized construction companies, is also increasing. POSCO Construction was selected as the contractor for Gaepo Lucky in Gangnam-gu and Garak Hyundai 5th in Songpa-gu, and Hyundai Construction also won the contract for Hannam Shibeom in Yongsan-gu. A construction industry official said, "As maintenance project regulations have recently tightened and work opportunities have decreased, participation of first-tier construction companies in small-scale reconstruction has increased," adding, "Prime complexes with good locations are expected to attract high interest for the time being."
Government Regulation Relaxations Also Follow
To increase the insufficient supply of urban apartments, support from the government and local governments for small-scale reconstruction is also expanding. Seoul City decided in June to relax regulations so that in areas zoned as type 2 general residential areas where building heights are limited to 7 floors, small-scale reconstruction projects can build up to 25 floors. The Ministry of Land, Infrastructure and Transport also proposed a plan to relax the maximum floor area ratio to 120% of the legal limit on the condition of donating public rental housing for public participation small-scale reconstruction projects.
The government is focusing more on revitalizing small-scale reconstruction rather than easing regulations on private reconstruction and redevelopment, which could stimulate housing prices, so there is room for profitability to improve further. In fact, the Ministry of Land, Infrastructure and Transport issued a legislative notice on the same day and introduced additional supplementary measures such as easing the housing supply ratio for public participation small-scale reconstruction. According to the amendment to the enforcement decree, small-scale reconstruction projects can participate if they supply at least 1.2 times the number of existing houses, and requirements such as passage roads within street blocks are also relaxed.
A Ministry of Land, Infrastructure and Transport official said, "Seoul has the highest demand for small-scale reconstruction projects, and local governments are also leading regulatory relaxations," adding, "It is expected that the projects will further expand through public participation small-scale reconstruction contests."
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