Demolition Tax Regulation Easing Demand... Transition Team Concerned About "Stimulating House Prices"

Gangnam Reconstruction Complexes "Hundreds of Millions Burden Fees Hamper Project Promotion"

[Asia Economy Reporters Minyoung Kim, Hyemin Kim] As the new government appears set to ease regulations related to reconstruction, the main stakeholders of reconstruction complexes are conveying various demands to the Presidential Transition Committee. In particular, it was confirmed on the 5th that major reconstruction complexes in the Gangnam area of Seoul have expressed their opinions to the Transition Committee, requesting a reduction in the burden fees arising from the Reconstruction Excess Profit Recoupment (재초환) system. Since easing the 재초환 regulations is included in President-elect Yoon Seok-yeol's campaign promises, it is expected that the Transition Committee will collect such opinions and begin improving the system.

A representative from the Apgujeong 3 District union in Gangnam-gu stated in a phone call that "The Gangnam-gu Maintenance Project Association recently submitted an opinion to the Transition Committee requesting that the start date for imposing burden fees under the 재초환 system be delayed from the current establishment of the Promotion Committee to the time of project implementation approval or management disposition approval." Under current law, the basis for calculating 'excess profit' is the approval date of the union establishment promotion committee (start date) and the reconstruction completion approval date (end date). The association is asking not to use the relatively early project stage of the promotion committee approval date as the start date, but rather to use the project implementation approval (contractor selection) or management disposition plan approval (union member allocation), which are closer to the completion approval date. This would significantly reduce the amount of excess profit and thus the burden fees.

The Apgujeong 3 District union representative lamented, "Since the promotion committee was established in September 2018, regardless of the union members' intentions, housing prices have doubled, and the burden fee is expected to be at least 1.2 billion KRW," adding, "If the 재초환 regulations are not eased, it will be impossible to proceed with the reconstruction project." In reality, the burden fees per person for reconstruction apartments in the Gangnam area reach hundreds of millions of KRW. For example, Banpo 3 District in Seocho-gu must pay about 400 million KRW, Daechi Ssangyong 1st Complex in Gangnam-gu about 300 million KRW, and Bangbae Samik in Seocho-gu about 275 million KRW in 재초환 burden fees.

Seoul City also views the 재초환 regulations as slowing down reconstruction efforts. A housing policy official from the city said, "We have requested the Ministry of Land, Infrastructure and Transport to revise the criteria for the amount imposed and the timing of imposition," pointing out, "In the early 2000s, the average house price was 330 million KRW, making the imposition threshold of 30 million KRW appropriate, but currently, the average apartment sale price in Seoul is 1.2 billion KRW, which does not reflect reality at all."

Separately, the Transition Committee and the government are also considering ways to reduce burden fees by modifying the 재초환 imposition method in line with President-elect Yoon's campaign promises. Among these is a method similar to the association's request, such as changing the evaluation point from the Promotion Committee approval date to the union establishment approval date. There is also discussion about expanding the recognized cost items excluded from excess profit, such as construction costs.

However, concerns that easing regulations could stimulate housing prices have deepened the Transition Committee's dilemma. Han Duck-soo, the nominee for Prime Minister, said to reporters on his way to work the day before, "From the perspective of increasing supply in the metropolitan area or important regions, reconstruction should be actively promoted," but added, "If the pace accelerates, that itself becomes a factor raising prices, so the methodology needs to be discussed carefully." Accordingly, the real estate task force (TF) within the Transition Committee may prioritize easing measures and attempt to control the pace in stages.

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