Expert Evaluation on the Announcement of the 1st Phase New Town Reconstruction Pilot Zones
"House Price Increases Will Vary by Pilot Zone"
"Financial Capacity and Reinvestment Tax Are Variables in Project Speed"
"Precautions Needed Against Rental Market Instability Concerns"
Experts expressed concerns that the government's announcement of the first-generation new town reconstruction pilot zones could increase market uncertainty. They predicted that the price gap between complexes selected as pilot zones and those not selected would widen, and that the rental market would become more unstable amid unclear relocation measures.
Scenery of Hyundai Apartment, Sibeom Complex, Bundang-gu, Seongnam-si, Gyeonggi Province / Photo by Yonhap News
"Rising Housing Prices in Bundang and Pyeongchon with High Project Feasibility"
On the 27th, the Ministry of Land, Infrastructure and Transport announced the integrated reconstruction pilot zones for the first-generation new towns, selected based on resident consent rates and public contribution ratios. The zones cover 13 areas within first-generation new towns such as Bundang, Ilsan, Pyeongchon, Jungdong, and Sanbon, totaling approximately 36,000 households. Construction is scheduled to begin in 2027 with a target move-in date of 2030.
While experts predicted price increases in these complexes, they also analyzed that there would be variations depending on project feasibility. Kwon Young-seon, team leader at Shinhan Bank's Real Estate Investment Advisory Center, said, "Housing prices are expected to rise mainly in complexes selected as pilot zones. However, even within the pilot zones, there will be differences depending on project feasibility." This outlook focused on the fact that only Bundang and Pyeongchon, known for their high project feasibility, saw price increases since the announcement of the pilot zones, while housing prices in other new towns have remained largely stable.
Kim Hyo-seon, senior real estate specialist at NH Nonghyup Bank, also noted, "Areas that failed to prepare as pilot zones may see prices fall as much as they rose," adding, "Just as Gyeonggi Province is divided into southern and northern parts, the price increases in pilot zones like Bundang and Pyeongchon will differ from those in other new towns." She judged that in areas with low project feasibility, price increases would inevitably be limited. She further emphasized, "To enhance project feasibility, mixed-use developments supplying educational and office facilities according to the region are required."
The pace of projects is expected to depend on the financial capacity of individual association members. Lee Eun-hyung, research fellow at the Korea Institute of Construction Policy, said, "The key to advancing reconstruction projects is how much additional contributions individual association members can bear," adding, "There is a high possibility that the pace will accelerate in affluent areas, which could lead to regional and localized polarization."
The reconstruction excess profit recovery tax (재초환) was also cited as a variable. Park Won-gap, senior real estate specialist at KB Kookmin Bank, said, "Profitability is the most important factor in reconstruction. If the base interest rate is lowered next year and construction cost increases stabilize, project feasibility could improve," but warned, "If the reconstruction excess profit recovery tax is not abolished despite government intentions, it will remain an obstacle to projects."
"Difficult to Handle Relocation Demand... Rent Prices Will Rise Further"
Experts predicted that the effect of expanding housing supply on market stabilization would be limited. Team leader Kwon said, "Considering the pace of reconstruction projects, it is uncertain whether the supply effect will be significant in the future." Research fellow Lee also pointed out, "It takes a long time for sufficient supply volume to become available through reconstruction projects."
They particularly observed that it would be realistically difficult to handle relocation demand, making rent price increases inevitable. It was noted that many elderly residents live in large-sized units in first-generation new towns, so they cannot be forcibly relocated just anywhere. Senior specialist Kim said, "Once large-scale relocation begins, people will try to move to Seoul or nearby locations, and with apartment rent prices rising due to issues like rental fraud, prices are likely to increase further." He added, "This could lead to a rise in rent-to-price ratios and an increase in gap investments."
Ham Young-jin, head of the Real Estate Research Lab at Woori Bank, also said, "Since the relocation period for over 30,000 households may coincide in 2027, the government must thoroughly prepare relocation measures to address rent price instability," suggesting, "It is necessary to consider short-term supply of non-apartment rental housing, utilization of vacant houses, and coordination of the timing for local governments' approval of management disposition plans within one year under the Urban and Residential Environment Improvement Act."
The Ministry of Land, Infrastructure and Transport plans to announce relocation measures next month. It has decided not to build complexes or housing exclusively for reconstruction relocatees. Minister Park Sang-woo said, "We will actively cooperate to ensure that the basic plans for each new town are approved by Gyeonggi Province within this year without delay," adding, "Next month, we plan to announce relocation measures such as development of idle land, cyclical maintenance of permanent rental housing, and plans to improve metropolitan transportation."
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