Forced Regulation on Sale Prices... Fuels 'Tricks' in Redevelopment Projects

Daewoo E&C Proposes 'REITs' for Banpo 3rd District to Avoid Low Pre-Sale Prices
Shinbanpo 3rd Phase Also Considering 'Full Sale'

Authorities Say "Avoiding General Sale Is Unfair Practice"... Refuse to Approve Maintenance Plan Changes
Industry Claims "Price Policies Ignoring Market, Such as Sale Price Controls, Are the Cause"

[Asia Economy Reporter Lee Chun-hee] The government’s enforcement of excessively low sale prices compared to surrounding market prices is causing major redevelopment and reconstruction associations to scramble to secure project profitability through various means. Recently, construction companies have been proposing alternative sales methods such as bulk sales and rental REITs to maintenance project associations during bidding processes, despite criticism of these tactics as 'tricks.' These moves are increasingly seen as a consequence of the government’s excessive market intervention.

According to industry sources on the 23rd, Daewoo Construction recently proposed a new method for handling general sales called 'reconstruction REITs (Real Estate Investment Trusts)' during the bidding process for the reconstruction of Banpo Jugong Complex 1, Section 3. Instead of general sales excluding association member sales, the association would contribute the units in kind to a REIT it invests in, operate it for a certain period, and then dispose of it.

Daewoo Construction’s proposal reflects the association’s concern that they would not receive fair prices if they conducted general sales under the Housing Supply Regulations. To issue a resident recruitment announcement for general sales, a sales guarantee from the Housing and Urban Guarantee Corporation (HUG) is mandatory, but during price negotiations, sale prices far below market prices have been repeatedly set.

The authorities immediately intervened, viewing this as no different from previous cases of avoiding general sales. On the 17th, the Seoul Metropolitan Government stated that this method is an "unfair act that undermines the current housing supply order, which fairly provides housing to non-homeowners through the subscription system," and announced that it would not allow changes to maintenance plans, a prerequisite for introducing REITs. A Ministry of Land, Infrastructure and Transport official, the competent authority, also expressed a negative opinion, saying, "It is not significantly different from existing cases such as Raemian One Bailey."

However, Daewoo Construction stated, "We have already reviewed through a law firm that this does not violate current laws," and expressed determination to proceed, saying, "This is merely an effort to diversify the options available to associations after selecting a contractor beyond the existing pre-sale and post-sale methods."

Previously, the Shinbanpo 3rd and Gyeongnam Apartment reconstruction (Raemian One Bailey) association pursued a plan to secure profitability by bulk selling general sales units to rental operators. The Ministry of Land, Infrastructure and Transport and Seoul City strongly opposed this, stating that it violated related laws and regulations and would not allow changes to maintenance plans, effectively nullifying the bulk sale. Ultimately, the association decided to proceed with sales by maximizing the '1+1' association member sales and reserved lots while reducing general sales units.

The bidding competition for maintenance projects has even led to prosecution investigations. During last year’s bidding for Hannam 3 District, the Ministry of Land, Infrastructure and Transport and Seoul City reported to prosecutors that multiple prohibited conditions were included, such as guaranteed sale prices, project cost and interest-free support, and zero rental housing. However, the prosecutors in charge decided not to indict the participating construction companies.

The industry is also raising doubts about the joint inspection results of seven redevelopment and reconstruction associations in Seoul announced by the Ministry of Land, Infrastructure and Transport on the 21st. Many of the 162 violation cases cited by the government are believed to be due to excessive legal interpretation. The Ministry announced plans to request investigations for 18 cases and issue corrective orders for 56 cases. An industry insider claimed, "The government’s criticism of 'excessive specialized design proposals' is based on overly subjective evaluation criteria."

The industry expresses dissatisfaction that such conflicts and noise surrounding maintenance projects are a butterfly effect caused by the government’s excessive price control policies, including strict sale price regulation. Amid the paradoxical phenomenon where general sale prices are even lower than association member sale prices, the government’s move to increase the ratio of rental housing in redevelopment projects is signaling a red light for project profitability. Consequently, construction companies facing reduced opportunities are targeting association members’ votes by proposing extraordinary profitability guarantees such as guaranteed sale prices, zero rental housing, and zero general sales as key conditions during bidding.

In fact, for Raemian One Bailey, the current association member sale price is about 55.6 million KRW per 3.3㎡. Even if a resident recruitment announcement is made before the expansion of the sale price ceiling system, the Housing and Urban Guarantee Corporation’s sales guarantee price in the Gangnam area currently does not exceed 50 million KRW per 3.3㎡, making it likely that general sale prices will be even lower.

An industry official said, "It will be difficult to avoid general sales when the government effectively controls permits and approvals. With the implementation of the private land sale price ceiling system, securing profitability is expected to become even more challenging, so associations’ concerns will deepen."

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