[Reconstruction Rationalization Measures] Reduced Burden but... Significantly Different Perceived Temperatures Between Provinces and Gangnam Area

[Image source=Yonhap News]

Market Real Demand Reaction

Limited Benefits for Multi-Homeowners and High-End Complexes

Parliamentary Approval Essential as It Requires Legal Amendments

[Asia Economy Reporters Kim Min-young, Noh Kyung-jo] If the government's plan to reduce reconstruction charges announced on the 29th is actually implemented, it is expected that reconstruction projects, which have been stalled due to regulations, will gain some momentum. However, since all three improvement measures require legal amendments, the ruling of the National Assembly is essential, making the passage through the parliament the biggest variable. Additionally, while this measure alleviates the burden on reconstruction complexes in provincial areas, there are criticisms that the perceived effect is not significant for representative reconstruction complexes in the metropolitan area where there is a large price gap with the provinces.

Ham Young-jin, Head of the Zigbang Big Data Lab, said, "It is expected that the excessive imposition of reconstruction charges, which has caused reconstruction projects to shrink or be delayed, can be somewhat reduced, and in the long term, it will have a positive effect on expanding housing supply in urban areas such as Seoul." He added, "If the exemption standard for reconstruction charges is raised to 100 million won, some complexes in provinces and outskirts of the metropolitan area may be excluded from the charge, so some reconstruction complexes are expected to see improvements in the speed of maintenance projects."

However, for single-homeowners who have held their homes for a long time, the burden has been eased as they can receive reductions depending on the holding period, but multi-homeowners or those in high-priced apartment clusters in the Gangnam area are still expected to express dissatisfaction with the level of charge relief.

Lee Eun-hyung, Research Fellow at the Korea Institute of Construction Policy, pointed out, "Regardless of how much the reconstruction charge reduction is, it is fundamentally positive for reconstruction, but the perceived impact will inevitably differ for each reconstruction complex." He added, "The difference in perspective between places where charges are slightly imposed at the level of tens of millions of won and places where the charge scale is large even after reduction, amounting to billions, cannot be the same."

The National Reconstruction Maintenance Project Union expressed regret that their request to ease the upper limit of the charge rate was not accepted. The union included a request to lower the upper limit of the charge rate from the existing 50% to 25% in a letter sent to the Ministry of Land, Infrastructure and Transport earlier last week.

Lee Mi-hee, Chairperson of the Seongsu Jangmi Reconstruction Union in Seongdong-gu (co-representative of the union), said, "It is regrettable that the upper limit of the charge rate has not been lowered, but the government opening the start date for imposition shows that it has not completely ignored the market." She added, "The reconstruction charge issue is something that anyone living in an apartment must face. We will continue to raise our voices to improve the upper limit of the charge rate."

A representative of the Banpo Hyundai Apartment Reconstruction Union in Seocho-gu, Seoul, said, "The chargeable amount is 600 million won, and applying the 50% charge rate means the burden is 300 million won." He added, "If the current maximum charge rate of 50% is not lowered to 25%, the relief effect for Seoul reconstruction complexes will be minimal."

Since additional tax relief benefits are given only to single-homeowners, conflicts due to differences in positions between single-homeowners and multi-homeowners within the union are also expected.

A representative of a reconstruction union in the Gangnam area of Seoul said, "There is a possibility of disputes within the union over whether to proceed with reconstruction between single-homeowners who receive more relief benefits and multi-homeowners who do not." He hinted, "Multi-homeowner members may argue for postponement or abolition and form a mood to wait until the general election two years later."

For this measure to be actually applied on the ground, passage through the National Assembly is essential. This is because all three easing measures proposed by the government require legal amendments. Park Won-gap, Senior Real Estate Specialist at KB Kookmin Bank WM Star Advisory Group, said, "Since it requires legal amendments, opposition from the Democratic Party and the passage through the National Assembly are the biggest variables."

He also viewed that the reconstruction charge reduction measure is unlikely to cause housing price instability in reconstruction complexes. Park said, "Currently, in a phase of interest rate fear, the market is insensitive to development factors, so a reversal in the reconstruction market is difficult." He added, "There may be some price increases due to expectations, but a sustained trend is unlikely."

Ham Young-jin of the Big Data Lab analyzed, "Given the strong downward pressure on housing prices and the exposure to sluggish housing transactions and weakened purchasing sentiment due to interest rate hikes and economic downturn, the easing of reconstruction charges is judged to have a limited effect as a trigger for housing price instability or speculative demand inflow for the time being."