[Exclusive] Regulatory Relaxation Reversal?... Transition Committee Reconsiders Promise to Exempt Reconstruction Safety Inspections

Transition Team "Adjusting Overly Strong Pledges"
Exemption May Stimulate Housing Price Increase
Focus on Easing Diagnostic Criteria

Lease 3 Laws to Be Reconsidered Rather Than Abolished
Contract Period Reset and Tax Benefits Expected

President-elect Yoon Suk-yeol is attending the transition committee secretariat meeting held at the Presidential Transition Committee in Tongui-dong, Jongno-gu, Seoul on the 22nd, delivering opening remarks. Photo by Yoon Dong-ju doso7@

[Asia Economy Reporters Baek Kyunghwan and Kim Hyemin] The Presidential Transition Committee (Transition Committee) is reviewing the possibility of not pursuing the exemption from detailed safety inspections for reconstruction, which was one of President-elect Yoon Seok-yeol's campaign pledges. This decision is based on the judgment that skipping safety inspections, which determine whether aging apartments can be reconstructed, could fuel housing price increases.

The committee is also slowing down the pace of reconsideration rather than abolishing the three lease laws, which were the main cause of the recent surge in housing prices under the current administration. This has led to interpretations that the real estate policy easing expected after the new government takes office might be less pronounced than anticipated. However, the Transition Committee plans to adjust any excessive pledges considering market impacts.

A key official from the Transition Committee said on the 24th, "There is a strong will to implement reconstruction and deregulation of reconstruction," adding, "However, there are concerns that exempting safety inspections could have too strong an impact on the market, so adjustments may be made."

Safety inspections are the first gateway in reconstruction projects. Passing the safety inspection is required to proceed with normal reconstruction procedures such as designation of maintenance zones, establishment of associations, project implementation approval, and management disposition approval. Reconstruction safety inspections are divided into preliminary safety inspections, which are on-site surveys to decide whether to conduct the inspection, and detailed safety inspections. If a D grade (conditional reconstruction) is received in the detailed safety inspection, an additional procedure called appropriateness review by public institutions must be undertaken.

The stages that caused headaches for reconstruction-promoting complexes were the detailed safety inspection and the appropriateness review by public institutions. The Moon Jae-in administration strengthened detailed safety inspections in 2018 by increasing the weight of structural safety from 20% to 50% and made appropriateness reviews mandatory. As a result, the number of complexes passing safety inspections in Seoul dropped to about one-tenth, hindering smooth housing supply. This is why President-elect Yoon proposed easing safety inspections.

However, during the review of the pledge, the Transition Committee decided to significantly revise the pledge to exempt detailed safety inspections for apartments older than 30 years. Considering that reconstruction is currently possible only for apartments over 30 years old, this pledge is practically equivalent to abolishing safety inspections altogether. The committee judged that encouraging reconstruction of aging apartments could stimulate housing prices. Unlike revising safety inspection evaluation criteria, exempting safety inspections requires legal amendments, which is another obstacle.

Instead, the Transition Committee is expected to focus on adjusting the criteria for detailed safety inspections, another pledge. This means maintaining the framework of safety inspections while reducing the burden on reconstruction-promoting complexes. Regulations can be eased simply by revising the Ministry of Land, Infrastructure and Transport's enforcement ordinances and administrative rules. The key is likely to be adjusting the weighting of the structural safety item. President-elect Yoon pledged to lower this weighting from the current 50% to 30% and double the residential environment item from 15% to 30%. This system was first introduced in 2003 under the Roh Moo-hyun administration, raised to 50% at that time, then lowered to 40% under the Lee Myung-bak administration and 20% under the Park Geun-hye administration.

The Transition Committee has also settled on reconsidering rather than abolishing the three lease laws (Jeonwolse Cap, Contract Renewal Request Right, and Jeonwolse Reporting System). A senior official of the Transition Committee said, "Abolition and system improvements have been continuously discussed by the campaign headquarters and aides, but (the Transition Committee) will prepare some partial amendments for speed control rather than abolition for now." Although there is a shared analysis within the committee that the three lease laws have caused side effects such as a sharp decrease in Jeonse listings and rising Jeonse prices, they judged that supplementation is better than abolition for the time being.

Detailed discussions on improvement directions will be held mainly by the Real Estate Task Force, composed of members from the Economic Subcommittees 1 and 2 of the Transition Committee. Currently, resetting contract periods and tax incentives are being discussed. The contract period may be reset to around three years rather than reverting to two years, considering issues such as controlling rental supply. The Jeonwolse Cap is also expected to be discussed gradually, such as providing tax benefits to landlords who set rents below the cap.

As campaign pledge revisions are being considered, criticism that President-elect Yoon's real estate policies, which were touted as the biggest differentiation from the current administration, are ultimately retreating is unavoidable. Since exemption from reconstruction safety inspections and abolition of the three lease laws were preconditions directly emphasized by President-elect Yoon to secure supply in urban areas and stabilize the Jeonwolse market, there are concerns that the new government's mid- to long-term real estate policy direction, which emphasized 'regulatory reform,' may also be adjusted.

However, market experts view that additional revisions to campaign pledges in the early stages of the administration are inevitable for managing the real economy, where public reactions are swift, such as real estate policies. A real estate expert who participated in the previous campaign headquarters said, "The real estate market involves real-time demand for sales and Jeonwolse, and is extensively linked with loan and financial management systems, making it difficult to introduce policies opposite to the current administration in a short period," adding, "Even after the new government takes office, it will face the reality that legislative amendments are difficult in a National Assembly where the ruling party does not hold a majority."

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