Oh Sehoon's Housing Supply Plan: Construction Costs, Not Approval Procedures, Are the Real Challenge [Real Estate AtoZ]

[Why&NEXT]
Ongoing Struggles Over Construction Cost Disputes
Verification System in Place, But Lacks Binding Force
Effectiveness Limited to Recommendations
Need to Enhance Impact Through Ordinance Amendments

Seoul Mayor Oh Sehoon has announced plans to accelerate the pace of housing supply through the "Rapid Integration Planning 2.0" initiative, but the market's response has been lukewarm. While the plan aims to shorten project timelines by one year by streamlining various approval and permit procedures, critics argue that it lacks practicality. Many associations are currently embroiled in disputes over surging construction costs, making it difficult to speed up supply simply by simplifying administrative procedures. The key to the success of Rapid Integration Planning 2.0 appears to lie in finding solutions that can reduce the financial burden on association members.

The core of Rapid Integration Planning 2.0, a private sector-led housing supply measure personally announced by Mayor Oh on September 29, is the relaxation of approval procedures and regulations. The main goal is to reduce the project period from the current 18 years and 6 months to within 12 years. While Rapid Integration Planning 1.0 focused on shortening the early stages of redevelopment projects (from district designation to association establishment) to two years, version 2.0 places emphasis on reducing the latter stages of the project by an additional year.

Seoul Mayor Oh Sehoon is delivering a congratulatory speech at the discussion forum titled "Seoul Looking Forward to Tomorrow - What Has the Rapid Integration Planning Changed?" held at the National Assembly Members' Office Building on the 22nd. Provided by Seoul City

The announcement by Mayor Oh has drawn negative reactions from the related industry. Considering the realities of each redevelopment project, industry insiders point out that simply reducing administrative procedures will not be enough to accelerate the pace of supply.

Recently, numerous project sites have seen work halted or concerns grow over delayed occupancy due to disputes over construction costs between associations and construction companies. For example, the Jamsil Raemian I-Park association, which is scheduled for occupancy in December, is conducting a feasibility review on an additional construction cost of 58.9 billion won, sparking opposition from the prospective residents’ council. The council believes a full audit of total construction costs is necessary. While the conflict between the two sides deepens, the construction company has sent a letter to the association warning that if the contract amendment for the increased construction costs is not finalized before the project loan matures in February next year, it could lead to issues with project completion. This complex has already seen construction costs increased three times. Maple Xi in Seocho District, which began occupancy in June, also faced turmoil when the association and the construction company (GS Engineering & Construction) became embroiled in a lawsuit four months before move-in.

While the Korea Real Estate Board and Seoul Housing & Communities Corporation offer construction cost verification systems to help prevent such disputes, these measures are insufficient for resolving conflicts. The verification results are merely recommendations without legal binding force. Even if the verification finds that construction costs are excessive, if the construction company insists on an increase, the association has little choice but to comply. Especially after construction has started, halting work leads to significant financial burdens. As a result, associations often reluctantly accept the construction company’s demands. An industry insider commented, "Under the current Urban Redevelopment Act, there is no regulation requiring construction cost verification results to be reflected in contract amendments, so they serve only as a reference," raising doubts about their effectiveness.

The city has introduced a redevelopment project coordinator system to help resolve disputes, but this too lacks enforceability. This system dispatches a team of experts and lawyers to project sites experiencing delays or conflicts. The coordinators mediate disputes between associations and construction companies through legal counseling and project monitoring. The system has led to agreements in areas such as Eunpyeong Daejo District 1 and Noryangjin District 6. However, since the mediation proposals are not binding, construction companies can refuse to accept them.

Experts suggest that amending city ordinances could enhance the effectiveness of the construction cost verification system. Attorney Kim Yerim of Law Firm Simmok stated, "Because construction costs fall within the realm of private autonomy, it is difficult to enforce them. However, an ordinance could introduce mechanisms such as limiting increases above a certain percentage based on verification results." She added, "It is also important to ensure that both associations and construction companies can present their opinions equally during the verification process, so procedural safeguards such as hearings should be implemented."

This content was produced with the assistance of AI translation services.