After the Dunchon Jugong Incident, Cooperatives Seek Trust Companies... Urgent Need to Establish Standard Contracts

[Image source=Yonhap News]

Hantoshin's Order Backlog Reaches 260 Billion Won in 5 Years

Trust Method Still Not Activated

Commission Calculation Methods Vary... Urgent Need for Standard Contract

[Asia Economy Reporters Kim Min-young, Hwang Seo-yul] Since the Dunchon Jugong incident, which caused prolonged construction delays due to conflicts between the union and the construction company, inquiries from reconstruction unions seeking trust companies have increased. As urban renewal projects through the trust method have led to actual results, perceptions of trust companies are improving more positively than in the past. However, there are concerns that commission calculation methods vary depending on the region and construction scale, and institutional measures must be established to ensure that profit-driven trust companies complete projects transparently without colluding with construction firms.

According to Korea Land Trust's IR data on the 18th, since the revision of the Urban and Residential Environment Improvement Act (Urban Improvement Act) in 2016, the order amount for loan-type urban improvement projects increased more than twofold from 34.6 billion won in 2017 to 81 billion won last year. The order backlog, which was below 20 billion won in March 2017, exceeded 260 billion won in March this year, five years later.

Currently, Korea Land Trust is conducting 19 urban regeneration projects as a project agent. It is mainly leading reconstruction and redevelopment projects such as redevelopment of Heukseok 11 District in Seoul, redevelopment of Munhwa 2 District in Daejeon, and reconstruction of Sinjeong Sujeong Apartments in Yangcheon, Seoul, demonstrating its presence. As a developer, it has secured six row house projects including Guro Row House in Gwangjin, Seoul, and Dowon Row House in Daegu.

Hantoshin officially entered urban improvement projects with the 2016 revision of the Urban Improvement Act. The revision opened the way for trust companies to participate as project executors in urban improvement projects. Recently, as major reconstruction projects like Dunchon Jugong Apartments and the largest redevelopment site Galhyeon 1 District have suffered, controversies over the appropriateness of the union-led urban improvement method have arisen, increasing voices that it is better to use trust companies despite higher costs. In fact, inquiries about reconstruction project agency through trust companies have increased after the Dunchon Jugong incident. A Korea Land Trust official said, "Since the Dunchon Jugong incident, inquiries from unions about projects through trusts have more than doubled."

The government is also encouraging the use of trust companies to enhance the transparency of urban improvement projects led by union heads. In the supply plan announced on the 16th, the government stated that to resolve transparency issues in private maintenance projects after the Dunchon Jugong incident, trust companies can be used without establishing a union, and a standard contract will be introduced.

Some argue that although the Urban Improvement Act revision opened the way for trust companies to enter maintenance projects, the reason for their lack of activation should be considered. An industry insider said, "It is necessary to examine why trusts have not been activated in maintenance projects so far," adding, "We need to consider how to maximize transparency when using trusts." Since trust companies are profit-driven, there is a possibility of collusion with construction companies rather than unions, and it is necessary to consider how well they can represent the interests of union members.

There are also concerns that since commissions are determined based on sales relative to project scale or region, transparency in commission calculation methods must be improved. Another trust company official said, "Contract contents vary by trust company, so it seems the government plans to introduce a standard contract to enhance transparency in these areas," adding, "To improve unions' perception of trust companies, a standard contract must be prepared quickly."