Abolition of Sejong Special Supply, a Strong Measure but "Everyone Who Could Benefit Has Already Done So..."

Became a Financial Investment Tool Over Years
Last Year’s House Price and Official Price Increase Rates Ranked 1st
Numerous Multi-Billion Won Profit Realizations
Continued Criticism of Delayed Administration
Calls for Revision of Repurchase Conditions

[Asia Economy reporters Kangwook Cho, Mune Won, and Taemin Ryu] The ruling party and government have reached a consensus to completely abolish the special supply system for public official apartments in Sejong City, which has recently become controversial, because it has degenerated into a financial investment tool for public officials, contrary to its original purpose. This appears to be an extraordinary measure to appease public anger caused by the government's failure in real estate policy. However, considering that in recent years, even variant methods such as the ‘ghost office building’ have been rampant and this system has become one of the ways for relocated public officials to increase their assets, it is expected that criticism of ‘belated administration’ cannot be avoided.

◇ Sejong City ranked first last year in house price and official price increase rates: "Consensus on excessive privileges" = Prime Minister Kim Boo-kyum explained at the party-government-civil service meeting held on the 28th that the reason for abolishing the special supply system was "a shared recognition that it is seen by the public as an excessive privilege."

The special supply system was originally established in 2010 and operated from the following year to stabilize housing and compensate employees of public institutions and companies relocating to Sejong City. In the early stages of urban development, there was a shortage of infrastructure, leading to unsold apartments, but the special supply system helped settle institution employees in Sejong City and contributed to establishing urban functions. According to government investigations, among the 96,746 apartments supplied in Sejong City over 10 years since the establishment of the administrative city special supply system, 25,636 units (26.4%) were allocated to public officials and employees of relocated institutions.

The problem is that in recent years, as Sejong City's house prices have risen sharply, apartments supplied through special supply have been used not as residential spaces for public officials but as means of asset accumulation. Moreover, the government lacked statistics or basic restrictions regarding this. There was also an aspect of concentrating special supply quotas to public officials to meet Sejong City's apartment sales performance.

In fact, Sejong City recorded the highest house price increase rate (42%) and official price increase rate last year. In July 2020 alone, the weekly house price increase rate nearly reached 3%. Numerous apartment complexes in Sejong City saw house prices double over the past year. In 2020, 19 multi-homeholding public officials sold special supply apartments in Sejong City, earning an average profit of about 400 million KRW.

◇ "Those who could benefit already have; why only now?" Persistent belated administration = The reason for criticism of ‘belated administration’ despite the government's abolition decision is that many public officials have already realized profits worth hundreds of millions of KRW due to the rapid rise in Sejong City house prices.

Public official A, who received a special supply apartment of 98㎡ (exclusive area) at Sejong The Sharp Hillstate in 2015, sold it last year for 1.35 billion KRW. The apartment's original price was about 360 million KRW, resulting in nearly 1 billion KRW in capital gains. Public official B, who was supplied a 110㎡ apartment in 2011 for about 375 million KRW, sold it last year for 1.29 billion KRW, earning over 900 million KRW in capital gains.

There were even cases like the ‘ghost office building’ of the Korea Customs Service's Customs Valuation and Classification Institute. Although the relocation to Sejong City was canceled, 49 out of 82 employees received special supply apartments and reportedly earned hundreds of millions of KRW in capital gains. According to industry sources and the Ministry of Land, Infrastructure and Transport, among the 25,406 special supply units issued since 2010, 5,943 units (23.4%) were traded through sales, resale, or lease over 10 years.

Professor Joo-hyun Cho of Konkuk University's Department of Real Estate said, "Those who could benefit already have, so the complete abolition is too late," adding, "The Sejong special supply system should have been used as an incentive to encourage corporate relocation, but it was applied regardless of that, focusing only on house sales, resulting in strange effects."

◇ Calls for revision to a repurchase condition system instead of abolition = There are also criticisms that the ruling party and government are taking an excessive step considering only public opinion. There are concerns that complete abolition instead of improvement measures could cause market confusion, affecting not only Sejong City public officials but also the market.

Professor Dae-jung Kwon of Myongji University's Department of Real Estate said, "Instead of abolition, the system should have been revised to a repurchase condition system where if someone receives special supply but does not move to Sejong and commutes from Seoul, they must return the house," explaining, "If special supply is completely eliminated, public officials moving to Sejong will struggle to find rental housing. This measure seems to be a strong move considering public opinion."

Some voices expressed grievances. A public official from a relocating institution said, "At the time, relocation was mandatory due to government policy regardless of individual intentions, so providing a ‘carrot’ was inevitable," and added, "It is unreasonable not to consider public officials working in regional institutions due to some mistakes."

The Ministry of Land, Infrastructure and Transport plans to improve the system rapidly. A ministry official said, "This is not a legal amendment but a revision of enforcement rules and directives, so it will not take much time," and explained, "Although institutions under the Ministry of Science and ICT, Ministry of SMEs and Startups, and Ministry of the Interior and Safety that are relocating (or scheduled to relocate) will not be eligible for special supply, there may be resistance, but housing instability can be resolved mid- to long-term through general subscription."

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