"Communication is 80% of Success"...There is a Reason Why Some Places Thrive [Sprouting Integrated Reconstruction]

Value Gains After Integration Over Mere Profit
Consensus Before Integration... "Jo Habjangs Must Study"
Price-Sensitive Seoul, Possible Only by "Lowering Expectations"

Editor's NoteReconstruction has entered a dark age. Many complexes are struggling due to sharply rising construction costs and selective bidding 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 projects 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.

From the perspective of reconstruction associations and other maintenance project entities, integrated reconstruction is a 'High Risk High Return' endeavor. It is difficult to succeed, but if achieved, it can bring great benefits. Conversely, failure can lead to a vicious cycle of prolonged reconstruction periods. The decisive factor is whether the interests between complexes and owners can be coordinated. Understanding the potential conflicts that may arise when multiple complexes are combined and responding promptly to increase project speed is the shortcut to successful integrated reconstruction.

"The moment one side feels disadvantaged, it's over"

Woosung 1st Complex (476 households) and Ssangyong 2nd Complex (364 households) in Daechi-dong, Gangnam-gu, Seoul, are representative complexes promoting integrated reconstruction in Seoul. The two complexes, which were each proceeding with reconstruction, agreed to integrate in September last year. This is a case where integration was decided while the project was underway, merging by dissolving the Ssangyong 2nd Complex association and absorbing it into Woosung 1st Complex.

Both complexes agreed on increasing the complex size and enhancing apartment value through integrated reconstruction. When pursued individually, Woosung 1st planned to build 712 households and Ssangyong 2nd 560 households. After Mayor Oh Se-hoon's inauguration, the apartment floor limit was relaxed, changing the maximum from 35 floors to 49 floors in the plan.

Integrated reconstruction eliminates the need for a 3-meter boundary line between the two complexes. Community facilities and entrances can also be shared, which is much more advantageous. The sale price of complexes with over 1,000 households is about 5-10% higher than those without. Design and service fees spent when pursuing individually became sunk costs, but association members supported integrated reconstruction with expectations for future asset value.

The efficiency of the site increased further as the commercial area between the two complexes (Woosung Commercial Association) joined the integrated reconstruction. If pursued individually, a road would have to be provided to the commercial area, but integration removed the previously landlocked road, expanding the site area accordingly. Woosung commercial owners receive apartment pre-sale rights in the Woosung reconstruction. Jeon Young-jin, head of the Woosung 1st Complex association, said, "Commercial owners benefit by receiving apartments, and the complex layout improves, so association members also benefit. Through commercial integration and joint use of underground space, the contribution fee was reduced by nearly 100 million won."

Conflicts actually decreased as Ssangyong 1st Complex, which had been discussing integration with the two complexes, withdrew its intention to integrate. Ssangyong 1st is a nearby complex located in the vicinity of Hakyeoul Station on Line 3. The two associations will soon submit a maintenance plan amendment to Gangnam-gu Office, outlining a maximum of 49 floors and 1,309 households.

There were some opposing opinions to integrated reconstruction. The former association head said, "I thought it was possible if we understood the laws and systems well and persuaded the association members. We prepared all integration procedures in advance for 10 months to reach an agreement." He added, "If the two complexes integrate to exceed 1,000 households, construction costs are expected to decrease by about 5%. I believe that even adjacent complexes should integrate with incentives as it is the development of the area. I hope excessive regulations are not imposed on maintenance projects that are not first-generation new towns or rapid integration plans."

"Clearly distinguish and share what works and what doesn't"

In Bundang, Seongnam-si, Gyeonggi Province, the five complexes on Jeongja 1-ro, mentioned as one of the leading pilot districts, are smoothly promoting integrated reconstruction. Centered around Migeum Station on the Suin-Bundang Line and Shinbundang Line, the five complexes?Seogwang Yeongnam, Gyeryong, Yucheon Fine, Cheongsol Hanla, and Imkwang Boseong?are pursuing integrated reconstruction with a resident pre-consent rate exceeding 90%.

Each of the five complexes is relatively small, with 400 to 700 households, and they had been preparing for integrated reconstruction even before the Special Act on the Maintenance and Support of Old Planned Cities (노특법) was enacted. The complexes had similar sizes, floor area ratios, and unit sizes, making integration advantageous. The variable was location. The complexes are stretched out along Migeum Station, clearly dividing those within the station area and those outside. However, the Imkwang Boseong apartment, the farthest from the station area, wanted to remain as a so-called 'Chopuma (apartment near an elementary school),' which easily resolved the issue. Lee Jae-chan, chairman of the Jeongja 1-ro Integrated Reconstruction Promotion Committee, said, "Residents living in the station area wanted to maintain their station area location. Their opinions were completely different, but the interests matched."

Having ample time to explain integrated reconstruction before obtaining resident consent attracted owners' understanding and interest. Chairman Lee said, "Due to the lack of cases, at the beginning of the project, there were questions about why it was necessary and some opposition." He added, "We thought persuasion was necessary first, so we held public hearings by complex and then jointly, and started collecting consent forms based on that." He continued, "During the process, floor area ratios may differ by complex, but I believe being honest and transparent helps. Each complex may improve differently, but we consistently say it will be better than pursuing individual reconstruction."

"In Seoul, pursuing only profitability makes it impossible... lowering expectations is necessary"

Experts diagnose that in Seoul, where housing prices are sensitive, integrated reconstruction will be difficult if only immediate project profitability is pursued. Song Seung-hyun, CEO of City and Economy, said, "In Seoul, even crossing one street changes housing prices, and differences between first and upper floors are considered. To promote integrated reconstruction, parties must lower their expectations."

In fact, Maple Xi in Jamwon-dong, Seocho-gu (integrated reconstruction of Sinbanpo 8, 9, 10, 11, 17 complexes, Nokwon Hanshin, Benihouse, etc.) focused on building apartments that association members wanted to live in rather than profitability. Unit sizes were designed first according to members' demands, and surplus units were allocated for general sale. The application of the price ceiling system at the time also influenced the decision, as general sales could not generate much profit. Instead, being a large complex with over 3,300 households and located near a station, it is now considered one of Banpo's flagship apartments. This contrasts with the stalled reconstruction of nearby small apartments due to rising construction costs. Song said, "Not pursuing profitability means you must have the capacity to pay. How much you can compromise is important."