Abolishing Jaechohwan Gains Momentum... Supply Expansion vs. "Stimulating Housing Prices" Debate (Comprehensive) [Real Estate AtoZ]

Market Expects Supply Expansion for Now
Concerns Over Side Effects of Revitalizing Reconstruction
Experts: "Potential for Market Stabilization and Normalized Supply"
Caution Against Public Opinion 'Trial Balloons'
Need to See If It Will Lead to Actual Legislation

As the ruling party has publicly announced its intention to ease or abolish the Reconstruction Excess Profit Recovery System (commonly known as "Jaechohwan"), expectations are growing in the market that, although belated, this could mark the starting point for normalizing housing supply. There are also forecasts that this could create a synergy effect when combined with strong demand-suppression measures such as the October 15 real estate policy. While some are concerned that improved profitability for reconstruction apartments could fuel a rise in housing prices, the prevailing view is that this will serve as a signal to expand supply. However, as opinions remain divided within the ruling party, the legislative process is expected to face significant challenges going forward.

Apgujeong Hyundai Apartment. Photo by Kim Hyunmin kimhyun81@

Moon Jinseok, Senior Deputy Floor Leader of the Democratic Party of Korea, stated on October 23, "Discussions on easing Jaechohwan are underway within the National Assembly’s Land, Infrastructure and Transport Committee, and we are considering two options: significantly extending the grace period or abolishing the system altogether." Bok Giwang, the Democratic Party's secretary for the committee, also commented, "If it can help stabilize the market, abolition is possible."

Jaechohwan: A Strong Will to Expand Supply

Relaxing or abolishing Jaechohwan can be seen as a proactive move to demonstrate a strong commitment to increasing housing supply. This shift in stance appears to be an effort to address negative public sentiment stemming from the October 15 real estate policy, which focused solely on expanding regulated areas and tightening loan restrictions to suppress demand. Abolishing or suspending Jaechohwan was not included in President Lee Jaemyung’s campaign pledges or in any of the three real estate policy packages announced by the current administration. When the Yoon Sukyeol administration attempted to abolish Jaechohwan last year, the Democratic Party opposed the move, preventing it from being legislated. Subsequently, legislative discussions were halted due to the December 3 Martial Law and the impeachment crisis.

Jaechohwan is a system that recovers up to 50% of the excess profit as a charge when the profit per cooperative member from reconstruction exceeds 80 million won. Introduced in 2006, it was suspended and then revived in 2018 under the Moon Jaein administration. According to the Ministry of Land, Infrastructure and Transport, as of the end of last year, 58 apartment complexes nationwide (29 in Seoul) were scheduled to be subject to the charge, with the average charge per cooperative member standing at 103.28 million won nationwide (147.41 million won in Seoul). However, since the system was reinstated, there has not been a single case where the charge was actually imposed. As the possibility of abolition has been raised, local governments have postponed imposing the charge.

Resolving the Supply Shortage vs. Fueling Housing Price Increases

The market has anticipated that revising Jaechohwan could serve as a signal to resolve Seoul’s "supply cliff." Since over 90% of new apartment supply in Seoul comes from redevelopment projects, Jaechohwan has been identified as a key regulation blocking supply. By reducing the profitability for cooperatives, it has caused many reconstruction projects to be delayed or put on hold. If the system is abolished, project profitability would improve, accelerating project timelines and potentially revitalizing new projects. This could open up a new stream of housing supply.

However, concerns remain that this could stimulate housing prices. Cho Kuk, Emergency Committee Chair of the Cho Kuk Innovation Party, recently criticized, "Revitalizing reconstruction and redevelopment will cause new apartment prices to soar, spreading to surrounding areas and making it even harder for ordinary people and young people to enter Seoul." As the speed of reconstruction projects increases, so will their value, which could become a new driver of rising home prices. Jin Sungjoon, a former Policy Committee Chair of the Democratic Party, also stated, "Excessive profits from reconstruction do not serve the public interest." With such opposition within the ruling bloc and a history of strong resistance to abolishing Jaechohwan, the legislative process is expected to be fraught with difficulties.

Will It Become a Symbol of Overcoming the Supply Shortage?

Experts tend to emphasize the potential for market stabilization and normalization of supply. Park Wongap, Chief Real Estate Expert at KB Kookmin Bank, said, "Easing Jaechohwan will serve as a catalyst for speeding up redevelopment projects and expanding urban supply in the long term. If delayed projects in areas like Apgujeong, Yeouido, and Mokdong are normalized, it could help alleviate supply imbalances." Ham Youngjin, Head of the Real Estate Research Lab at Woori Bank, commented, "The Democratic Party’s change in attitude is positive, and easing Jaechohwan is a signal for supply expansion."

There are also warnings that abolishing Jaechohwan "should not remain just words." Seo Jinhyung, Professor of Real Estate Law at Kwangwoon University, said, "We need to see if this will actually lead to legislation, but if it turns out to be a mere ‘trial balloon’ to calm public opinion, it will only erode trust." Lee Changmoo, Professor of Urban Engineering at Hanyang University, emphasized, "Abolishing Jaechohwan is not just a symbolic gesture; it has real effects in reducing conflicts in redevelopment projects and speeding up progress. The focus should be on normalizing supply, not framing it as a driver of higher housing prices."