Transition Committee to Announce This Week
Including Yoon's Pledge of '2.5 Million Housing Units'
Relaxation of Reconstruction and Redevelopment Regulations
Rising Housing Prices Could Burden New Administration
[Asia Economy Reporters Minyoung Kim, Dongpyo Kim] Is it regulatory easing for supply or a speed adjustment for real estate market stability? As the Presidential Transition Committee plans to announce major real estate policies this week, the real estate market is closely watching. There are concerns that if regulations are loosened to the extent promised in President-elect Yoon Seok-yeol’s pledges, it could inadvertently stimulate the market. Therefore, there is also speculation that the transition committee will focus more on ‘speed adjustment’ rather than the level of regulatory easing the market desires.
◆ Outline of the ‘2.5 Million Housing Units’ Supply Policy Emerges = The real estate task force (TF) of the transition committee is expected to include the supply plan for ‘2.5 million housing units,’ a flagship pledge of President-elect Yoon, in this week’s real estate policy announcement. Won Il-hee, the senior deputy spokesperson of the transition committee, mentioned in a briefing on the 15th that "the stance on real estate has been somewhat finalized and is now in the compilation stage, with only final confirmation remaining."
Industry insiders expect the announcement to emphasize supply plans rather than regulatory easing. Furthermore, given the current situation of a divided National Assembly, it is anticipated that the committee will first disclose measures that do not require legal amendments and do not stimulate the real estate market. Recent warnings about the drive to ease redevelopment and reconstruction regulations also support this prediction.
The supply plan refers to the 2.5 million housing units pledged by Yoon during his presidential campaign. Separately from the transition committee TF, the Ministry of Land, Infrastructure and Transport and Seoul City are jointly operating the ‘Urban Housing Supply Implementation TF.’ This TF is working on concretizing project models such as transit-oriented first homes and youth cost-price housing to supply over 2.5 million units, including 1.3 to 1.5 million units in the metropolitan area. The Seoul City and Ministry TF will hold its second meeting on the 20th.
◆ The Message on Regulatory Easing to the Market Also Key = Although the easing of reconstruction and redevelopment regulations, a hot topic in the real estate market, is expected to be excluded from this announcement, there is a possibility that a message will be conveyed indicating that regulations will not be loosened to the level promised by President-elect Yoon. The market is already volatile due to expectations of reconstruction regulation easing, and a sharp rise in housing prices could become a significant burden for the new administration.
The main regulatory hurdles slowing reconstruction progress and demanded to be lifted by the market are the detailed safety inspection and the reconstruction surplus profit recovery system. During his candidacy, Yoon proposed an improvement plan to reduce the weight of structural stability in the detailed safety inspection from the current 50% to 30%, and increase the weight of facility aging and residential environment from 15% to 30%. Seoul City has also recommended since January that to accelerate reconstruction, the Ministry of Land, Infrastructure and Transport should lower the structural stability criteria and lift the reconstruction surplus profit recovery regulations.
Park Won-gap, senior real estate expert at KB Kookmin Bank, predicted, "It is more likely that the detailed safety inspection will include lowering the weight of structural stability rather than a complete exemption, and the reconstruction surplus profit recovery system, which causes market instability, will likely be excluded as legal amendments are essential."
The transition committee is also closely monitoring the recent price fluctuations centered on reconstruction projects in Gangnam after the presidential election. According to data on ‘Seoul apartment transaction status after the presidential election (March 10 to April 12)’ submitted by the Korea Real Estate Board to Kim Hoe-jae, a member of the National Assembly Land, Infrastructure and Transport Committee from the Democratic Party, the average price of rising transaction apartments in Gangnam and Seocho districts rose by 394.21 million KRW to 2.542 billion KRW compared to the previous peak average of 2.148 billion KRW. While supply measures are needed to curb housing prices, regulatory easing to facilitate supply is ironically pushing prices even higher.
The fact that the June local elections are only a few months away also deepens the transition committee’s dilemma over the level of regulatory easing. Additionally, concerns about supply shortages are growing as the Dunchon Jugong reconstruction in Gangdong-gu, Seoul, faces a construction halt and is likely to be delayed long-term. Originally, this project was scheduled to start general sales in April 2020 and sequential move-ins from August 2023, but ongoing conflicts between the contractor and the association have prevented even setting a sales schedule. If the dispute escalates into litigation, it is predicted that move-ins will be difficult not only in 2023 but also in 2024.
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