Invested Everything, Then a Shock... Bought a Home from an Owner of Three Reconstruction Apartments and Became a 'Joint Association Member' [Real Estate AtoZ]

Cautions for Investing in Association Member Pre-sale and Occupancy Rights in Speculative Overheated Districts
All Co-owners Must Qualify for Association Membership to Transfer Rights
Gifting to Children After Association Establishment Does Not Allo

"If a member of a reconstruction association who owns three apartments transfers two units to two different people after three years have passed since the establishment of the association but before applying for project implementation approval, all three individuals become joint association members. The association membership status cannot be divided." (Kim Jungwoo, lead attorney at Centro Law Firm)

At the 'Real Estate and Legal Concert' held by NH Nonghyup Bank at DreamPlus Gangnam in Seocho-gu, Seoul, Kim Jungwoo, lead attorney at Centro Law Firm, is giving a lecture on the topic "Key Checkpoints for Investment in Speculative Overheated District Association Members' Residential Rights and Pre-sale Rights." Photo by Hanjinju

With the October 15 Real Estate Measures, all of Seoul and 12 areas in Gyeonggi Province have been designated as speculative overheated districts, significantly raising the barrier to investment in reconstruction and redevelopment projects. Even if the conditions allow for the transfer of association membership, it is important to determine whether a person can secure sole membership status and whether all joint holders of shares meet the requirements for association membership.

At the "Real Estate and Legal Concert" held by NH Nonghyup Bank at DreamPlus Gangnam in Seocho-gu, Seoul on October 23, attorney Kim Jungwoo explained, "According to a recent Supreme Court ruling, even if you purchase real estate from a person with multiple rights, only one association membership is recognized. Therefore, when investing, you must check whether the seller owns multiple units."

Even if succession criteria are met, 'sole association member' status must be confirmed

In speculative overheated districts, if you acquire a reconstruction property after association establishment approval or a redevelopment property after management disposition approval, you cannot succeed to association membership. Exceptions are only allowed in cases where a single-home owner has held the property for 10 years and lived in it for 5 years, when acquisition is due to inheritance or divorce, or when all household members relocate overseas. Even if these exceptions are met, it is crucial to closely examine whether sole association membership is possible. For example, if a member who owns both an apartment and a commercial property within a single maintenance district sells only the apartment after three years from association establishment approval but before project implementation approval, joint association membership is created.

When purchasing a reconstruction apartment in a speculative overheated district that is jointly owned 50% each by two people, both individuals must transfer their association membership status to the buyer. Kim Jungwoo stated, "If only one of the co-owners meets the requirements of being a single-home owner for 10 years and having lived there for 5 years, the court has ruled that, even if the property is acquired through auction, each transferor must be individually assessed." He added, "The Supreme Court also upheld the High Court's ruling in August, so in such cases, the buyer is subject to cash settlement."

After association establishment, 'gifting' does not allow for succession of membership

If an owner of a reconstruction apartment gifts half of the shares to each of two children after the establishment of the association, succession of association membership is not possible. The court has determined that one cannot become a member if the building or land is acquired after association establishment approval.

To prevent such confusion, when drafting a sales contract for investment in maintenance projects within speculative overheated districts, a special clause regarding 'sole association membership status' should be included. Kim Jungwoo explained, "The sales contract should clearly state that acquiring the sole association member's residential right is the purpose of the transaction, and if this right is not recognized, the contract can be canceled. The contract should also specify the amount to be paid as compensation for damages and penalties in addition to the sale price."

Additionally, in the case of buildings or land in maintenance project areas where the association has already been established, association membership can only be acquired if the property is auctioned or publicly sold due to the inability to fulfill debts to the state, local governments, or financial institutions.

Before management disposition approval, alternative housing purchase is not allowed

One of the key points of the October 15 Measures is that association members can no longer take out relocation loans to purchase alternative housing. Members at the stage before management disposition approval must move into rental housing. Previously, if you purchased alternative housing, lived there for more than one year, sold the new apartment more than three years before completion, and all household members lived there for at least one year, you could qualify for tax exemption.

Kim Hyosun, Chief Real Estate Specialist at NH Nonghyup Bank, explained, "For apartments that received management disposition approval before being designated as regulated areas, the tax exemption benefit will remain even if alternative housing is acquired. Reconstruction and redevelopment homes that received approval before the effective date will be recognized as exceptions."