[Real Estate AtoZ] Spotlight on Trust Reconstruction... "Will Project Speed Increase?"

Trust-Based Reconstruction Gains Spotlight, Extending from Yeouido to Mokdong
Praised for Expertise and Resolving Member Conflicts
"Few Success Cases, Uncertain if Faster than Union-Based Method"

Recently, following Bundang New Town in Seongnam City, Gyeonggi Province, and Yeouido in Seoul, a complex in Mokdong has also begun pursuing reconstruction through a trust method. In reconstruction projects, which are prone to delays due to conflicts between the association and construction companies or among association members, the trust method aims to reduce conflict factors and accelerate the project. However, since successful cases are still rare, there are opinions that it is uncertain whether the project speed will actually be faster than the association method.

Spotlight on Trust Method Reconstruction... Reducing Member Conflicts to Prevent Project Delays

According to industry sources on the 15th, eight complexes including Mokdong New Town complexes 1, 2, and 5 are pursuing reconstruction projects using the trust method. Seven complexes such as Samik in Yeouido and Shibeom Apartments, as well as Seo-hyeon-dong Hyojachon in Bundang New Town and Jeongja-ilro in Jeongja-dong, have also chosen the trust method.

The trust method involves conducting redevelopment projects through a real estate trust company. The trust company participates in the entire process from financing the project to sales and receives 2-4% of the sales revenue as compensation. This method was introduced following the revision of the 'Urban and Residential Environment Improvement Act' in 2016. Its biggest advantage is that it can reduce various conflicts arising in redevelopment projects and prevent project delays.

An official from a trust company said, "When a trust company participates in the project, it can mediate conflicts among association members and accelerate the project," adding, "As the project speed increases, project costs can also be saved." He noted, "In the association method, projects are often delayed due to disagreements among members with complex interests."

The trust company is said to have more expertise and credibility, enabling it to better resolve conflicts within the association. For example, when there is a disagreement between association members owning commercial properties and those owning apartments over profit distribution, the trust company can propose alternatives such as allocating profits based on contribution. In such cases, association members are more likely to follow the trust company's third-party proposals rather than those suggested by specific members.

Regarding the issue of increased construction costs, a compromise can also be reached quickly with the construction company. A construction industry official said, "When issues like construction cost increases arise these days, projects under the association method tend to be delayed due to strong opposition," adding, "However, if a trust company that has established relationships with construction companies participates, negotiations can proceed more quickly through some compromise."

"Whether Project Speed Is Faster Than the Association Method Remains to Be Seen"

However, since successful cases of the trust method are few, there are opinions that it is uncertain whether the project speed will actually be faster than the association method. A representative from the Korea Housing Association said, "Although the trust method is said to be faster than the association method, this needs to be examined carefully," adding, "The trust method has been involved in reconstruction for less than 10 years, and there are few successful cases. It is difficult to be confident that it is faster than the association method."

Seoul reconstruction site.
[Photo by Yonhap News]

For example, there are only 11 reconstruction and redevelopment complexes completed by Korea Land Trust and Daehan Land Trust. According to Daeto Trust, completed complexes include eight locations such as 'Deungchon Doosan We've' in Deungchon-dong, Gangseo-gu, Seoul, and 'Brownstone Gyeyang Sky' in Jakjeon-dong, Gyeyang-gu, Incheon. Korea Land Trust's completed complexes include 'Centreville Asterium' in Yeongdeungpo-dong, Yeongdeungpo-gu, Seoul, 'Hakik SK View' in Hakik-dong, Nam-gu, Incheon, and 'e-Pyeonhan Sesang Eco Foret' in Yongun-dong, Dong-gu, Daejeon.

Song Seung-hyun, CEO of City and Economy, said, "While the trust method can increase project speed by resolving conflicts among association members and between the association and construction companies, conflicts between association members and the trust company must also be considered," adding, "If the association cannot be the project entity and opinions diverge between the trust company and the association when selecting a construction company, the project may be delayed."