"Is Jaechohwan Really Being Abolished?"... 'Supply Card' Emerges Amid Backlash to Real Estate Measures [Real Estate AtoZ]

Democratic Party Lawmakers on Land Committee: "Considering Suspension or Abolition"... Progressive Shift in Stance
Jaechohwan Opposed as Opposition, Now Reconsidered After Becoming Ruling Party
"Over 90% of New Housing in Seoul Comes from Redevelopment"... Hopes for Resolving Delays and Conflicts
Cho Kuk Innovation Party and Internal Opposition Signal Difficulties Ahead
Experts Warn: "If It Ends as an Empty Promise, Distrust Will Grow"

Lawmakers from the ruling party who serve on the National Assembly’s Land, Infrastructure and Transport Committee have begun to publicly discuss the need to ease or abolish the Reconstruction Excess Profit Recovery System (commonly known as “Jaechohwan”) in response to worsening public sentiment following the October 15 real estate measures. This marks a reversal from the previous administration, which opposed abolishing the system. While the market remains cautious, some see this as a positive signal toward normalizing housing supply.

Ruling Party Shifts to a More Progressive Stance... "Suspension or Abolition" of Jaechohwan Discussed

Apgujeong Hyundai Apartment. Photo by Hyunmin Kim kimhyun81@

Moon Jinseok, Deputy Floor Leader for Operations of the Democratic Party, stated on the 23rd, “The Land, Infrastructure and Transport Committee is currently discussing easing the Jaechohwan system, and we are considering two options: significantly extending the grace period or abolishing the system altogether.” Bok Giwang, Democratic Party secretary for the committee, also remarked, “If it can help stabilize the market, abolition is possible.” Facing mounting criticism over the October 15 real estate measures-which focused solely on suppressing demand through expanding regulated areas and tightening loan restrictions-the party has brought up abolishing Jaechohwan to demonstrate a genuine commitment to increasing supply.

Jaechohwan has long been blamed for stifling redevelopment projects. Under this system, if the profit per cooperative member from a reconstruction project exceeds 80 million won, up to 50% of the excess amount is collected as a levy. Introduced in 2006, it was suspended due to a market downturn and revived in 2018. According to the Ministry of Land, Infrastructure and Transport, as of the end of last year, 58 complexes nationwide (including 29 in Seoul) were slated to be subject to the levy. The average expected levy per cooperative member is about 103.28 million won nationwide (147.41 million won in Seoul). However, no actual collections have occurred. Since Jaechohwan was reinstated, local governments have postponed imposing the levy, citing the possibility of the system being abolished.

Park Wongap, Chief Real Estate Expert at KB Kookmin Bank, said, “Easing Jaechohwan could become a real catalyst for expanding housing supply in the long term. As delayed redevelopment projects in areas like Apgujeong, Yeouido, and Mokdong are revitalized, it will help alleviate supply imbalances within the city.” He added, “Because Jaechohwan directly influences the sentiment and determination of cooperative members, easing it would have a symbolic impact and signal to the market that policies are changing.”

Ham Youngjin, Head of the Real Estate Research Lab at Woori Bank, also commented, “The Democratic Party’s progressive change in stance is a positive sign. Since over 90% of new housing in Seoul comes from redevelopment and reconstruction, easing Jaechohwan could serve as a signal for increased supply.” He further noted, “If the government actually follows through with institutional reforms, it could gain public trust.”

"Must Not Remain an Empty Promise... Clear Effect on Reducing Project Conflicts"

Many believe that the Democratic Party’s sudden mention of abolishing or easing Jaechohwan is intended to quell the backlash from the October 15 measures. When the Yoon Suk Yeol administration officially pushed for abolition last year, the Democratic Party, then the main opposition, blocked it. Subsequently, the December 3 Martial Law and the impeachment crisis brought all legislative progress to a halt. Notably, neither President Lee Jaemyung’s campaign pledges nor the current administration’s three rounds of real estate policies have ever mentioned suspending or abolishing Jaechohwan.

The legislative process is expected to be difficult. There are internal disagreements, the variable of the Cho Kuk Innovation Party, and the party’s own record of opposition in the past. Jin Sungjun, a Democratic Party lawmaker and former policy committee chair, stated last May, “We need to implement Jaechohwan first to assess the actual burden,” expressing opposition to abolition. Additionally, Cho Kuk, interim leader of the Cho Kuk Innovation Party, is skeptical of private-sector-led redevelopment and reconstruction, making it difficult for the opposition to unify its stance. Recently, Cho argued, “Private reconstruction and redevelopment only drive up apartment prices,” and insisted, “We should build high-quality, ultra-high-rise public rental apartment complexes in Gangnam.”

Experts warn that the Democratic Party’s move must not end as an “empty promise.” Lee Changmoo, a professor of urban engineering at Hanyang University, said, “Abolishing Jaechohwan is not just symbolic; it has a real effect on reducing conflicts within redevelopment projects. If the gap in levies among cooperative members is reduced, project implementation will accelerate after the management and disposal plan stage.” He added, “The Jaechohwan issue should be approached from the perspective of project feasibility. If it ends as an empty promise, the backlash will only intensify.”