[Reconstruction Rationalization Plan] "No Abolition of Rechohan"... Reconstruction Exemption Standard Raised to 100 Million Won

Expansion of Excess Profit Levy Unit to 70 Million KRW
Up to 50% Reduction for Long-Term Owners of Single Homes Over 10 Years
Exemption Granted to 38 of 84 Notified Contribution Sites

The government announced a plan to rationalize reconstruction charges on the 29th as a follow-up measure to realize national housing stability. The photo shows apartments in Seoul city viewed from Lotte World Tower Seoul Sky in Songpa-gu, Seoul. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Cha Wanyong] The government plans to raise the exemption threshold for reconstruction surplus charges from the current 30 million KRW to 100 million KRW and expand the charge intervals from the existing 20 million KRW units to 70 million KRW units. Additionally, long-term homeowners of a single house will receive significant additional reductions in charges, and a plan to exclude part of the contributions already made to the public, such as donations, from the reconstruction surplus charges is also being pursued.

◆ Increasing the exemption threshold for the reconstruction surplus charge and expanding the charge rate units = The core of the reconstruction surplus charge rationalization plan announced by the Ministry of Land, Infrastructure and Transport on the 29th is the revision of the “Reconstruction Excess Profit Recovery System” (재초환, Jaechohwan).

The government will raise the current exemption threshold of 30 million KRW to 100 million KRW and expand the charge rate units, which range from 10% to 50% depending on the excess profit bracket, from the existing 20 million KRW to 70 million KRW. The starting point for calculating excess profit will be adjusted to the date of approval for the establishment of the association. Currently, the excess profit used as the basis for determining the charge is calculated from the date of approval for the formation of the temporary organization for the redevelopment project, the promotion committee.

Jaechohwan is a system that imposes a charge of up to 50% if the profit gained by association members from the reconstruction project exceeds 30 million KRW per household. The association members’ profit is calculated by subtracting development costs and house price increases from the increase in house prices during the project period. However, in many cases, the charge per household exceeded expected levels, causing many to abandon projects, which slowed down the progress of redevelopment projects. Because of this, it has been regarded as one of the “three major obstacles” to reconstruction policies, with calls for its abolition from associations and others.

An incentive system for reducing public contributions in reconstruction will also be introduced. Currently, when public rental or public sale housing is supplied cheaply to public institutions during reconstruction projects, benefits such as increased floor area ratio can be received. However, the sales proceeds were included in excess profits, increasing charges and reducing project incentives. Therefore, the proceeds from the sale of public rental and public sale housing will be excluded from the excess profit calculation when determining charges.

A system for reducing charges for long-term homeowners of a single house will also be established. Currently, charges are imposed uniformly regardless of the housing ownership period or purchase purpose. For single-household single-homeowners who have owned the house for six years or more, counted backward from the completion date, a 10% reduction in charges will be applied, and for those owning it for 10 years or more, reductions of up to 50% are planned. However, the homeowner must be a single-household single-homeowner at the time of completion, and the ownership period includes only the time the house was owned as a single-household single-homeowner.

Additionally, considering economic capacity and comprehensive real estate tax regulations, elderly single-household single-homeowners (aged 60 or older) will be allowed to defer payment until the disposal of the house through inheritance, gift, or transfer, provided collateral is offered.

◆ Significant reduction in charges expected mainly in provincial areas = With the implementation of this reconstruction surplus charge rationalization plan, among the 84 complexes notified of expected charges as of July, charges for 38 complexes are expected to be exempted. In particular, in provincial areas, 21 out of 32 complexes are expected to be exempted, indicating a significant reduction in charges mainly in these regions.

The number of complexes expected to be charged less than 10 million KRW will increase from 30 to 62, while those expected to be charged more than 100 million KRW will decrease from 19 to 5, showing a substantial easing of the charge burden.

The burden on actual users will also be greatly reduced by the reduction for long-term single-household single-homeowners. For example, a complex notified of a 100 million KRW expected charge will see the charge reduced by 70 million KRW due to the adjustment of the charge criteria, resulting in 30 million KRW. Furthermore, if the maximum 50% reduction for long-term single-household single-homeowners is applied, the charge will be 15 million KRW, achieving a final reduction of 85%.

Kwon Hyukjin, Director of the Housing and Land Office at the Ministry of Land, Infrastructure and Transport, said, “This improvement plan was prepared after multiple discussions with related experts and local governments and is expected to rationalize the excessive reconstruction surplus charge regulations. Since this plan involves legal amendments, we plan to cooperate closely with the National Assembly during the legislative process.”