"Following Construction Costs, Indirect Project Expenses Quadruple Too" Sighs of Anyang Reconstruction Association Members [Real Estate AtoZ]

Anyang-dong Jinhung Apartment Reconstruction Normalization Committee Pushes for Dismissal of Union Head
Indirect Project Costs Rise by 212.2 Billion KRW, Four Times Higher Than Contract Construction Cost Increase
Proportional Rate Falls 15% Three Months Before Move-in, Additional Contributions Total 89.9 Billion KRW
General Meeting Voting Method Also Questioned... Union Head Says "No Issues Expected"

Members of the reconstruction association of Jinheung Apartment in Anyang-dong, Manan-gu, Anyang-si, Gyeonggi Province (Anyang Station Prugio The Sharp) are sighing over the increase in indirect project costs. The contract construction cost paid to the construction company within the project cost rose by 52.5 billion KRW due to inflation and other factors. However, indirect project costs used for association operations surged by as much as 212.2 billion KRW, causing backlash. The association stated that the project was carried out following proper procedures, but some members have formed an Association Normalization Countermeasure Committee and are demanding the dismissal of the association head.

"Construction costs increased by only 52.5 billion KRW, but indirect project costs for association operations rose by 212.2 billion KRW"

According to related industries on the 16th, the Jinheung Apartment reconstruction association confirmed a 51.6 billion KRW increase in project costs at the regular general meeting held on the 12th. The project cost, which was 692.6 billion KRW in 2020, has risen every year and reached 957.3 billion KRW after this general meeting.

The association explained that the cost increase was an unavoidable measure amid rising costs due to high interest rates and inflation. The head of the Anyang Jinheung Apartment reconstruction association said, "Indirect project costs include relocation loan and interest support, estimated costs for the reconstruction excess profit recovery system, etc. These costs have risen significantly." He added, "We are trying to reduce costs from 1 million KRW to 980,000 KRW."

The Association Normalization Countermeasure Committee opposed this increase in project costs. A committee official said, "While it is understandable that costs rise in times of high inflation and high interest rates, it is incomprehensible that indirect project costs, not construction costs, have risen sharply, causing the overall project cost to increase." He added, "As the project cost increased, the proportional rate sharply decreased, and members now have to pay an additional total of 89.9 billion KRW in contributions about three months before moving in."

Unlike other reconstruction associations struggling due to rising construction costs, this association is facing difficulties due to the increase in indirect project costs. According to the association's general meeting booklets from 2020 to 2024, out of the 957.3 billion KRW project cost for the Anyang Jinheung Apartment reconstruction this year, indirect project costs amount to 368.9 billion KRW, which is 212.2 billion KRW higher than the 156.7 billion KRW in 2020. During the same period, contract construction costs only increased from 535.9 billion KRW to 588.4 billion KRW.

As indirect project costs rose, the proportional rate, which was previously 109.35%, decreased to 94%. The proportional rate is an indicator showing how much the real estate asset value (registered asset) of association members has increased through the reconstruction project. When project costs such as construction and financial costs rise, the proportional rate falls.

If the proportional rate does not exceed 100%, members must pay additional contributions. Due to the drop in the proportional rate, the estimated additional contribution burden on members is 89.9 billion KRW, averaging about 44.4 million KRW per member.

Normalization Committee: "Voting method at the general meeting is also problematic" vs Association Head: "Measures taken without issues of fairness or manipulation"

The Association Normalization Committee also pointed out procedural issues during the agenda handling process at this general meeting. They confirmed the voting results on the increase in project costs and the reappointment of association executives through a manual vote count, but observers could not properly watch the counting process. According to the committee, the counting was conducted on the stage of the general meeting hall while observers were outside the stage. The manual vote count was conducted because electronic voting was not possible due to ballot errors. Many invalid votes occurred during electronic counting due to ballot issues. Up to about 300 invalid votes appeared for a single agenda item.

This led to a flood of protests from about 800 members attending the meeting. Members opposed the results, saying, "Invalidate the vote," and "Let's call the police." Particularly, members who had decided to submit written resolutions instead of attending the meeting came to the meeting, but the association did not provide them with ballots, causing the protest to last for several hours. The notary lawyer at the meeting said ballots were distributed to members, but members claimed they did not receive them, leading to conflict. The meeting, which started at 6 p.m., ended around 2:30 a.m. the next day.

A spectator is observing from outside the podium during the vote counting process at the regular general meeting held by the Anyang Jinhung Apartment Reconstruction Association on the 12th.
[Photo by Anyang Jinhung Apartment Reconstruction Association Normalization Countermeasure Committee]

The committee also raised the possibility of forgery of written resolutions received from members who did not attend the meeting. Among the two written resolutions received by members, one did not have a space for personal information such as the member's name, making it impossible to detect forgery during the submission process after voting. A committee official said, "If the written resolution is double-sided, only one side needs a personal information section, but if there are two separate sheets and only one has a name, how can we be sure the other sheet was actually voted on?"

Regarding this, the head of the Anyang Jinheung Apartment reconstruction association said, "The distance between the manual vote counting area and the observers during the general meeting was about 1.5 to 2 meters, so there was no problem with the observers performing their role," and "Both sheets of the written resolution were stored and delivered in one envelope, so there was no issue of forgery." He added, "We are explaining to members and seeking ways to raise the lowered proportional rate."

The reappointment of the association head was also discussed at this general meeting, with 52% (990 votes) in favor, 43% (821 votes) against, and 4% (79 votes) invalid. In response, the Association Normalization Committee plans to pursue the dismissal of the association head through methods such as informing members of the current situation.

Meanwhile, Anyang Station Prugio The Sharp is a complex built by reconstructing the Jinheung Apartment, which was constructed in 1983. It consists of a total of 2,736 households and is scheduled for occupancy in October. The construction companies are Daewoo Engineering & Construction and POSCO E&C.