Co-ops Decline as 'Trust' Rises... Changing Landscape of Reconstruction and Redevelopment

Sinwol Siyeong Reviews Trust for 'Reconstruction Speed Battle'
Namseoul Lucky Also Leans Toward Transparent Trust
Experts "Need to Find Suitable Method for Each Project Site"

In Seoul's redevelopment and reconstruction projects, 'trust' is rapidly emerging as an alternative to 'associations.' This is interpreted as due to the real estate market downturn combined with rising construction costs, making associations, which lack expertise, insufficient. Especially as cases of project delays due to internal conflicts among association members, such as in Dunchon Jugong in Gangdong-gu, Seoul, have increased, more places are turning their attention to trusts.

Shinwol Siyoung, Nam Seoul Lucky, and others leaning towards 'faster' trust

According to the maintenance industry on the 7th, the Shinwol Siyoung Apartment Reconstruction Promotion Preparation Committee in Sinwol-dong, Yangcheon-gu, Seoul, will hold a second project briefing on the 11th, inviting several trust companies. At the first briefing held on the 11th of last month, KB Real Estate Trust already explained the advantages and procedures of the trust method. After conducting a survey on reconstruction methods targeting owners, over 90% chose trust, leading them to listen to explanations from multiple trust companies.

An official from a real estate agency in Sinwol-dong explained, "In Yangcheon-gu, besides Shinwol Siyoung, 12 complexes in Mok-dong's new town are undergoing reconstruction, sparking a speed competition among apartments. Considering relocation and demolition, there is a risk of falling behind in order, so they are opting for the more professional trust method."

The Nam Seoul Lucky Apartment Reconstruction Promotion Preparation Committee in Siheung-dong, Geumcheon-gu, Seoul, also held a briefing on the 26th of last month with Korea Land Trust, KB Asset Trust, and Korea Asset Trust. They explained the project method and compared the maintenance project records of each trust company. Nam Seoul Lucky Apartment plans to decide on the preferred trust company after a survey this week. A representative of the reconstruction promotion committee said, "There is a perception that the trust method is more transparent and faster than the problematic association method, and the government is also promoting the trust method, so we decided to head in that direction."

Additionally, several projects such as Gukhwa Apartment in Mullae-dong, Yeongdeungpo-gu, Sindonga Apartment in Yangpyeong-dong, and Sangye Hanshin 3rd Apartment in Nowon-gu are considering the trust method. Among Seoul's rapid integrated planning project sites, including Changsin 10 District in Jongno-gu, Sangdo 14 District in Dongjak-gu, and Banghwa 2 District in Gangseo-gu, some are also pursuing the trust method. Despite Seoul City shortening project periods through integrated administrative procedures, they are discussing the trust method for even faster progress.

Trust method is faster with higher expertise but fees are burdensome

Redevelopment and reconstruction have traditionally been carried out mainly by associations composed of owners. In contrast, the trust method has a trust company lead each stage of the maintenance project, such as project implementation approval and management disposition approval, on behalf of the owners. Compared to associations, which are private entities, trust companies have financial power and expertise, enabling smoother project progress. Also, when a trust company undertakes the implementation, there is no need to establish an association, saving about four years in the early stages.

However, even though the Urban and Residential Environment Maintenance Act was amended in March 2016 to formally introduce the trust method, few projects chose it except for Yeouido. This is because trust companies charge fees up to 4% of the sales revenue, and as it is an unfamiliar system, it was difficult to obtain owners' consent.

Recently, as the real estate market has declined and material costs have risen, causing frequent construction cost increases, the drawbacks of the association method have become apparent. Even if verification is requested from the Korea Real Estate Board, associations lacking expertise face limitations in negotiating construction costs. As a result, more projects have turned to trust companies capable of stable project execution. A clear example of the limitations of the association method is Dunchon Jugong, known as the "largest reconstruction since Dangun." Construction was once halted due to intensified conflicts between the association and the construction company over construction cost increases. Moreover, internal conflicts among association members deepened, with several changes in the association head, resulting in wasted time. Consequently, association members had to bear losses due to project delays.

An industry insider advised, "Trust can be divided into methods where the trust directly implements the project and where it acts on behalf of the association. While the drawbacks of the association method are clear, it has the advantage of allowing owners' opinions to be gathered. Even with trust, projects can stagnate, so owners should carefully examine which method suits them best before deciding."