[8.16 Supply Measures] 220,000 Housing Units Newly Designated in Redevelopment Zones... Private Sector Cooperation Is Key

100,000 Houses in Seoul, 40,000 in Gyeonggi and Incheon

80,000 Houses Mainly in Old Downtown Areas of Provincial Metropolitan Cities

Reconstruction Burden Relief Plan to be Announced in September

Safety Inspections Also Revised

[Asia Economy Reporters Kim Min-young, Kim Dong-pyo] The new government's supply plan focuses on supplying 2.7 million households over the next five years by encouraging private sector participation rather than public-led projects. Noting that urban renewal projects have been excessively suppressed due to various regulations, the government aims to ease regulations that slow down reconstruction and redevelopment to concentrate housing supply in urban areas preferred by actual demanders. However, the speed and scale of supply are expected to be influenced by how much private cooperation can be drawn amid the real estate downturn and inflation-driven price increases.

◆ Normalizing Reconstruction and Redevelopment... Designating 220,000 New Maintenance Zones Nationwide = First, the government will supply 500,000 houses in Seoul, which is more than 50% higher than the 320,000 houses supplied over the past five years. In the metropolitan area, a total of 1.58 million houses will be supplied in urban centers, station areas, and 3rd New Towns, while 520,000 houses will be supplied in provincial metropolitan cities. Above all, the supply in urban areas preferred by actual demanders will be significantly increased. A total of 520,000 houses will be built through redevelopment, reconstruction, and urban complex projects within the city. In public land such as 3rd New Towns, 880,000 houses will be supplied, which is 240,000 more than the 640,000 houses supplied in the past five years.

The government also plans to designate more than 220,000 new maintenance zones nationwide over the next five years through strengthened cooperation with local governments and institutional improvements. This is more than 70% higher than the 128,000 houses designated as maintenance zones from 2018 to 2022. Specifically, 100,000 houses will be designated in Seoul through the rapid integrated planning method, and 40,000 houses will be designated in Gyeonggi and Incheon in station area and aging residential districts. In provincial areas, 80,000 houses worth of new maintenance zones will be designated mainly in declining old downtown areas of metropolitan cities. The government plans to discover about 150,000 new land candidates by next year and announce them sequentially starting October next year.

Won Hee-ryong, Minister of Land, Infrastructure and Transport, said, "Urban renewal projects have been excessively suppressed over the past 10 years. We will normalize redevelopment and reconstruction projects by newly designating 220,000 houses nationwide and more than 10,000 houses in Seoul as maintenance zones to greatly expand supply."

Lee Eun-hyung, Research Fellow at the Korea Construction Policy Research Institute, said, "In Seoul, redevelopment projects have been difficult to promote over the past 10 years, with Hannam 3 District as a representative example. Expanding zone designation centered on areas wishing to proceed with projects rather than unilateral designation by the public sector is positive in that it aligns with market demand."

◆ Easing Regulations on Reconstruction Excess Profit Recovery and Safety Inspections = Regarding reconstruction regulation easing, attention is focused on the Reconstruction Excess Profit Recovery System (재초환) and safety inspection regulations, which will also be revised. The Reconstruction Excess Profit Recovery System, introduced in 2006, has been repeatedly deferred due to legal disputes over unrealized gains and the need to normalize reconstruction. The government plans to update the current threshold of 30 million KRW per member and prepare measures to consider long-term homeowners and elderly owners. Additionally, projects contributing to public interest, such as rental housing supply, will be eligible for burden reductions. The government plans to announce detailed relief measures in September after thorough review.

Along with this, safety inspection regulations, criticized for making new reconstruction difficult, will be eased. The government will adjust the weight of structural safety from the current 50% to around 30-40% and will conduct public institution appropriateness reviews only upon local government requests. However, specific details on the scope and timing of application will be presented by the end of the year after reviewing market conditions.

Ham Young-jin, Head of Zigbang Big Data Lab, said, "Besides the large-scale supply target of 2.7 million houses during the term, it is notable that supply regulations have been eased in urban locations with aging housing amid difficulties in securing land, shifting supply to be demand-centered. In particular, easing regulations on Reconstruction Excess Profit Recovery and safety inspections aims to restore the urban supply function centered on private redevelopment and reconstruction projects."

Regarding maintenance projects in 1st New Towns such as Bundang and Ilsan, which are reaching 30 years since occupancy, research will begin in the second half of this year to establish a master plan for new town redevelopment by 2024. The government plans to prepare a comprehensive urban redevelopment plan including residential environment improvement, metropolitan transportation, and infrastructure expansion through legislation such as the Special Act on New Town Redevelopment.

For urban complex projects, qualifications previously limited to the public sector will be expanded to the private sector. Furthermore, to prevent delays like those seen in the D Complex, known as Seoul's largest reconstruction project, the government will strengthen the expertise and transparency of associations to avoid project delays.

◆ The Key is How to Draw Private Cooperation = However, experts say that for the new government's supply plan to proceed swiftly, concrete measures for land acquisition, private cooperation, and funding must be presented. Considering the recent situation where many private construction companies hesitate to start construction despite receiving permits due to soaring raw material prices, real estate market downturn, and interest rate hikes, it is difficult to secure private cooperation.

Park Won-gap, Senior Real Estate Specialist at KB Kookmin Bank, said, "It is necessary to establish practical follow-up plans on how to 'discover' land and 'secure' funding, especially since it is difficult to secure land closer to urban areas preferred by the 2030 generation. Drawing private 'cooperation,' which will play a significant role in this supply plan, is also a challenge." He added, "Land discovery, funding, and private cooperation will be the three key factors determining the effectiveness of this supply plan."

Ham Young-jin of the Big Data Lab said, "There are considerable challenges ahead, such as whether the bill to ease Reconstruction Excess Profit Recovery and safety inspection regulations will pass, the diminishing effectiveness of private incentives for urban complex projects, concerns over actual price increases due to rising raw material costs, and the increase in unsold and uncontracted units due to housing market downturn and economic contraction."