Government Takes Strong Step with 재초환 Exemption... Will the 'Supply Shock' Affect the Real Estate Market?

Housing Supply of 830,000 Households Nationwide by 2025
LH and SH Introduce 'Public Direct Implementation Redevelopment Project'... "Feasibility Is Uncertain"

On the morning of the 4th, after the briefing on the 'Public-led 3080+ Major Metropolitan Area Housing Supply Drastic Expansion Plan' held at the auditorium of the Government Seoul Office Annex in Jongno-gu, Seoul, Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, and Byeon Chang-heum, Minister of Land, Infrastructure and Transport, were having a conversation. Photo by Joint Press Corps

[Asia Economy Reporter Jang Sehee] The government is introducing a public implementation reconstruction redevelopment plan that exempts the reconstruction excess profit recovery (재초환). Additionally, the two-year residency requirement for reconstruction association members will no longer apply. Although the government describes this as a 'supply shock' level measure, it remains uncertain whether the policy will be effective in the actual market. Critics argue that the goal of stabilizing housing prices may fall short due to uncertain private sector participation.

On the 4th, Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki and Minister of Land, Infrastructure and Transport Byun Chang-heum announced the 'Public-led 3080 Plus Metropolitan Housing Supply Expansion Plan' containing these measures. The plan aims to concentrate the supply of 320,000 housing units in Seoul and 830,000 nationwide by 2025.

Deputy Prime Minister Hong stated, "The supply volume of 830,000 units is about twice the annual nationwide housing supply, and the 320,000 units to be supplied in Seoul correspond to 10% of Seoul's housing stock, representing a 'supply shock' level."

First, the government will introduce the 'public direct implementation redevelopment project.' This means that if residents wish, redevelopment or reconstruction projects will be directly implemented by public enterprises such as the Korea Land and Housing Corporation (LH) and Seoul Housing and Communities Corporation (SH), which will lead the project and sales plans.

Through this method, the government plans to drastically shorten the project period from the current 13 years or more to less than 5 years, from planning to relocation, to supply housing in urban areas.

Additionally, complexes participating in redevelopment projects will receive either a one-step zoning upgrade or a 120% increase of the statutory maximum floor area ratio. Redevelopment projects can proceed with the request of a majority of association members (currently two-thirds required).

Regarding the exemption of the reconstruction excess profit recovery due to public participation, the Ministry of Land explained, "The reconstruction excess profit burden charge aims to prevent privatization of development gains, and since the public direct implementation method attributes development gains to the public, the charge will not be imposed."

The People's Solidarity for Participatory Democracy evaluated this real estate policy by stating, "By promising to supply a large number of housing units at prices lower than market value, the government aims to appease homebuyers trying to catch the last train at the peak price and turn them into waiting demand," adding, "This is likely to further stimulate jeonse (long-term lease) demand and significantly turn Seoul and metropolitan cities into speculative markets."

Experts also pointed out that real estate price increases are inevitable with the public direct implementation redevelopment project. Professor Kwon Dae-jung of Myongji University's Department of Real Estate said, "If LH and SH directly implement redevelopment and reconstruction, it will shorten the project period," but emphasized, "Ultimately, persuading opponents of reconstruction and redevelopment and guaranteeing their profits will be important."

He added, "The plan might just remain on paper during the remaining term of the Moon administration," and "Since there are no specific supply areas or details, it remains to be seen whether it can be realized."

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