'180 Trillion Dinosaur' LH, Complex Speculative Structure... Will It Be Split Again?

Merged to Modernize Public Enterprises
But Serious Side Effects of Monopoly
Government Announces Strong Structural Reforms
Experts Call for "Work Separation and Workforce Reduction"
Also Advocate Establishing External Monitoring System

[Asia Economy Reporters Kangwook Cho, Hyemin Kim] "Was it a merger to create speculative synergy?" The Korea Land and Housing Corporation (LH), which grew into a ‘giant’ with assets worth 180 trillion won and about 10,000 employees through the merger of the former Korea Housing Corporation (Jugoong) and Korea Land Corporation (Togong), is once again facing the risk of division. Due to the employees’ land speculation scandal, not only the side effects of its monopolistic position but also the inadequacies of external monitoring and internal control systems have come under scrutiny, prompting announcements of high-intensity structural reforms. Some even predict that LH may be heading toward a de facto dismantling just 11 years after its integration.

◆Criticism as a ‘Chemical Combination of Speculation’ = LH was established in 2009 as part of the Lee Myung-bak administration’s public enterprise modernization plan by merging the former Togong and Jugoong, becoming the largest public enterprise in South Korea. Since then, LH has held a monopolistic position in the public real estate sector, executing government real estate policies at the forefront, from new town land development to public housing construction.

In particular, the Moon Jae-in administration significantly strengthened the public function of the real estate market and expanded LH’s organization. The number of employees, which was around 6,000 at its inception, has now increased to about 10,000. Based on the Korea Land and Housing Corporation Act, LH exercises authority over everything from land acquisition and land development to sales, including compulsory acquisition and exclusive development rights.

However, the chemical combination process was not easy. The integrated labor union was only launched in 2019, ten years after LH’s establishment, and as the organization grew, scandals involving employee corruption such as bribery and preferential contracts for LH apartments surfaced, causing continuous controversies over individual misconduct. Contrary to expectations that the large-scale national projects promoted through integration would improve the deteriorated financial structure, the debt, which was 100 trillion won at the time of integration, has instead surged to 130 trillion won. The average annual salary per employee (excluding public enterprise management evaluation bonuses) was approximately 68.9 million won as of 2019.

◆Restructuring Scenarios = Following Prime Minister Chung Sye-kyun’s emphasis on ‘radical transformation’ the day before, and Deputy Prime Minister Hong Nam-ki’s statement on the 12th at the 16th Real Estate Market Inspection Ministerial Meeting that "strong innovation measures for LH will be prepared," LH’s organization is expected to undergo some form of surgery.

In the market, there are proposals to separate LH’s public development sector from its housing welfare duties and reduce the workforce. For example, functions could be divided into housing welfare, land development, urban regeneration, and urban maintenance, establishing separate corporations. Some even suggest reverting to the pre-merger state by separating Jugoong and Togong again.

There are also voices calling for reducing LH’s role in the government’s supply expansion policy, as resistance has grown against expanding its scope to include redevelopment and reconstruction projects beyond land development and housing supply.

Seojinhyung, president of the Korea Real Estate Society and professor at Gyeongin Women’s University, said, "When an organization is too large, administrative efficiency can decline, so LH’s organization should be slimmed down to one-third," adding, "In particular, some development functions should be separated and transferred to the private sector or local public corporations, while LH should focus on management functions such as housing welfare."

However, experts point out that simply downsizing the organization physically has its limits. A stronger external monitoring system is needed. Therefore, they argue that strict legislation should be enacted to prohibit LH employees from acquiring real estate for investment purposes and to recover unfair profits obtained through insider information. Especially given the limitations of internal audits, there are calls to establish an independent external monitoring system.

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