[Ryu Taemin's Real Estate A to Z] Remodeling of 1st Generation New Towns → Is It Okay to U-Turn to Reconstruction?

[Asia Economy Reporter Ryu Taemin] Recently, major complexes in the 1st generation new towns that were pursuing remodeling are increasingly considering switching their projects to reconstruction. This is due to growing expectations that the next government will ease reconstruction regulations. However, since the legal basis for the two projects differs, switching to reconstruction would require starting over from the beginning, and the project feasibility could also decline, prompting calls for caution.

Most apartments in the 1st generation new towns that require maintenance projects have pursued remodeling. This was seen as a relatively easier alternative amid various regulations on reconstruction. According to the Korea Remodeling Association, as of March, there are a total of 119 remodeling projects nationwide, about twice as many as the same period last year (61 projects). However, interest in reconstruction is rising after candidate Yoon Seok-yeol, who proposed the ‘1st Generation New Town Special Act’ to significantly increase the floor area ratio for 1st generation new towns nearing the reconstruction eligibility period (30 years), was elected.

When Switching to Reconstruction, Consent Collection Leads to a ‘Loop’... Project Feasibility Must Also Be Considered

Experts advise caution regarding switching to reconstruction for complexes that have already progressed beyond a certain stage. Remodeling and reconstruction are based on different laws. Reconstruction projects follow the ‘Urban and Residential Environment Maintenance Act (Dojungbeop)’, while remodeling is based on the Housing Act. Therefore, complexes that have been pursuing remodeling for years must restart all processes from the first step of collecting consent if they switch to reconstruction.

There are also concerns about low project feasibility. A key reason why 1st generation new town apartments chose remodeling projects is project feasibility. The average floor area ratio of 1st generation new towns is between 169% and 226%. Generally, when the floor area ratio exceeds 200%, reconstruction is considered less feasible, making remodeling more advantageous. Although the new government has announced plans to raise the maximum floor area ratio up to 500%, specific standards have not yet been presented, leaving high uncertainty.

Song Seunghyun, CEO of City and Economy, explained, "Due to the floor area ratio of 1st generation new towns, there are limits to project feasibility, so many choose remodeling. To increase the number of households, units must be divided into smaller sizes for sale, which likely reduces marketability."

Project duration and costs are also factors to consider. Reconstruction projects take longer than remodeling and incur higher costs, which may lead to opposition within the complex. Additionally, a minimum safety diagnosis grade of D or lower is required, and various regulations and review processes must be passed, creating numerous obstacles.

Lee Donghoon, Policy and Legal Committee Chair of the Korea Remodeling Association, said, “There have been no cases yet where complexes that were pursuing remodeling have actually switched to reconstruction,” adding, “Remodeling has clear advantages because the project duration is relatively shorter and regulatory hurdles are lower.”