Seoul City Halts Daewoo's Banpo 3rd District "Lease Then Sale"... "Unfair Practice"

Banpo Jugong Apartment (Photo by Yonhap News)

[Asia Economy Reporter Onyu Lim] Daewoo E&C's REITs (Real Estate Investment Trusts) project proposal to the Banpo Jugong 1st Complex 3rd District reconstruction association in Seocho-gu has become virtually impossible. This is because the Seoul Metropolitan Government has intervened, judging it as an "unfair act that disrupts the housing supply order."

On the 17th, Seoul announced that the general sale portion of the Banpo 3rd District reconstruction apartments cannot be purchased by a REIT and operated as rental housing without a change in the maintenance plan. It also clearly stated that it will not allow changes to the maintenance plan in the future. Seoul defined this business method as an "unfair act that disrupts the current housing supply order, which fairly supplies housing to non-homeowners through the subscription system," and declared, "We will not permit changes to the maintenance plan."

Previously, Daewoo E&C proposed a project method to the Banpo 3rd District to avoid the private land price ceiling system by selling the general sale portion to a REIT for rental and then resale. The general sale portion would be contributed in kind by the association to the REIT at the appraised value, so from the association's perspective, it would not be subject to the price ceiling system. The REIT could then operate rentals for a certain period and later resell at the association's desired sale price (market price level) without the price ceiling system, according to the company.

However, Seoul pointed out that supplying the general sale portion of reconstruction apartments as rental housing through the REIT method violates Article 9, Paragraph 1, Item 10 and Article 52, Paragraph 1, Item 8 of the Urban and Residential Environment Maintenance Act, which are relevant laws.

Seoul also emphasized that, according to Article 18, Paragraph 6 of the Special Act on Private Rental Housing, public-supported private rental housing or long-term general private rental housing under the Private Rental Special Act cannot be preferentially supplied in areas subject to the price ceiling system.

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