"United We Stand"... Reconstruction Cooling Period, Hot 1st Generation New Towns [Emerging Integrated Reconstruction]

Most Active Bundang... Estimated 19 Sites
Special Act for Old Workers Ignited the Spark... Enhancing Business Feasibility and Infrastructure
"Attempts Will Continue Even in Seoul... Success Is Uncertain"

Editor's NoteReconstruction has entered a dark age. Many complexes are struggling due to sharply rising construction costs and selective contracting by construction companies. In this situation, integrated reconstruction is emerging as a trend in the maintenance industry. It is a method where individual complexes with a small number of households or insufficient business feasibility come together to reconstruct as one complex. By increasing the scale through integrated reconstruction, the value of apartments can also be enhanced. However, the industry predicts that there will not be many complexes that actually succeed, as the business feasibility varies by complex and there are many interests to coordinate. Communication between complexes is advised as the key to success. Asia Economy visits five places promoting integrated reconstruction in the maintenance industry to diagnose their current status and the direction of integrated reconstruction.

"Who would have thought reconstruction would be possible in the 1st generation new towns? It costs so much money that the saying was 'Reconstruction is impossible no matter what.' But these days, the situation has completely changed. If you don't push it forward, the chairman will be ousted. 'Even if we fail, let's just unite first' ? that's the current situation."

A banner requesting resident participation is hung in a reconstruction promotion complex in Bundang, Seongnam-si, Gyeonggi-do. (Photo by Kim Hyemin)

On the 15th, a promotion committee chairman leading integrated reconstruction in Bundang, Seongnam City, Gyeonggi Province, shared the local atmosphere like this. Recently, the 1st generation new towns, including Bundang, are leading integrated reconstruction. Especially in Bundang, the integration movement is the most active. According to Asia Economy's comprehensive coverage, currently 19 locations and 58 complexes are promoting integrated reconstruction.

The Special Act on Old Planned Cities Became a Catalyst... "No Reconstruction Without Integration"

The wind of integrated reconstruction in the 1st generation new towns started when the government enacted the Special Act on Maintenance and Support for Old Planned Cities (the Special Act). This law is specialized for aging planned cities where it is difficult to promote maintenance projects such as reconstruction under the existing Urban and Residential Environment Maintenance Act. It includes benefits that can enhance business feasibility, such as ▲ exemption or relaxation of safety inspections ▲ increase of floor area ratio by 150% ▲ change of land use zones, but as a prerequisite, it requires 'integrated maintenance' by combining multiple complexes.

In the 1st generation new towns where reconstruction is difficult without the Special Act, the fire has been lit. Especially, as the government began selecting 'pilot districts' for reconstruction first, the integration momentum has strengthened. After the Ministry of Land, Infrastructure and Transport announced the selection criteria in May, the number of complexes promoting integrated reconstruction reportedly increased rapidly. A promotion committee chairman in Bundang said, "Originally, 12 to 15 complexes had expressed their intention and were preparing, but now it is hard to even count the number."

Improving Infrastructure and Lowering Construction Costs... Win-Win for Government and Residents

The government is encouraging integration because it is difficult to redraw the city's blueprint with the existing method of reconstructing a single apartment complex. Many places that need reconstruction under the Special Act already have densely packed apartments. If apartments are rebuilt by increasing the floor area ratio, various problems such as sunlight obstruction and traffic congestion due to increased population may arise. On the other hand, if adjacent complexes are combined to increase the scale of reconstruction, infrastructure such as roads can be improved together, which is the government's idea. Although it is reconstruction, the government expects redevelopment effects in practice.

Complexes promoting integration can also use a wider space more efficiently. Legally required facilities such as management offices and senior centers can be integrated into one large facility, and various community facilities can be included. Roads between complexes can be incorporated into the site, increasing the area. Underground parking lots can be expanded with less excavation by using integrated parking. Boundary works such as earth retaining walls required in individual reconstruction disappear. As unnecessary construction decreases, construction costs can be saved. According to a research project by the Korea Research Institute for Human Settlements, there is about an 11% cost reduction effect compared to individual reconstruction. Additionally, management fees decrease due to integrated operation of security and management personnel and community facilities. Small complexes can reduce concerns about failed bids due to selective contracting by construction companies. The increase in apartment value due to enlargement can also be expected.

Kim Je-kyung, head of Toomi Real Estate Consulting, said, "The advantage of integration lies in maximizing maintenance effects," adding, "As construction costs have skyrocketed, small-scale places are now at a dead end, so economies of scale must be created to increase negotiation power on construction costs and lower unit prices." He added, "Since they move by grouping on a wide scale, there is also an improvement effect such as road maintenance."

More Options... Will It Become Active Beyond the 1st Generation New Towns?

With the enactment of the Special Act, Seoul also has more reconstruction options. The Special Act applies to sites larger than 100㎡, and in Seoul, this includes Gaepo and Suseo-dong in Gangnam-gu, Junggye and Sanggye-dong in Nowon-gu, Mok-dong in Yangcheon-gu, Sinnae-dong in Jungnang-gu, and Godeok-dong in Gangdong-gu. These areas can receive benefits such as safety inspection exemptions and increased floor area ratios through integrated reconstruction. According to the Urban and Residential Environment Maintenance Act, reconstruction requires a building age of over 30 years, but under the Special Act, it is possible for buildings over 20 years old. Originally, reconstruction was considered unfeasible if the floor area ratio exceeded 200%, but under the Special Act, it can be increased up to 450%. If it is difficult to pass safety inspections and the floor area ratio is high, it is worth attempting integration.

The number of cases attempting integrated reconstruction is expected to increase. In fact, attempts at integrated reconstruction have been made in Seoul areas such as Mok-dong. Some complexes promote integrated reconstruction expecting large-scale business feasibility regardless of the Special Act. However, experts point out that success is not easy. Kim Gyu-jung, head of the Asset Succession Research Institute at Korea Investment & Securities, said, "The government is encouraging reconstruction by grouping, and individual project entities such as associations continue to feel the need for integration," adding, "Due to various interests, it is not an easy task in reality, so there will be cases of splitting again, excluding commercial areas, and various forms will emerge."