Will the previously scrapped 재초환 be 'eased'... Government says "No grace period"

Ministry of Land, Infrastructure and Transport: "No Deferral of Capital Gains Tax on Rebuilding Due to Daejang-dong Scandal Aftermath"
Coalition of Associations: "No Half-Hearted Easing, Must Proceed Swiftly"

A view of the apartment complexes in the Gangnam area from the Lotte World Tower Sky Observatory in Songpa-gu, Seoul. Photo by Dongju Yoon doso7@

[Asia Economy Reporter Noh Kyung-jo] Voices calling for the abolition or suspension of regulations continue to rise regarding the hollow relaxation measures of the Reconstruction Excess Profit Recovery System (재초환). Reconstruction associations seem to have pinned their hopes on the conservative Yoon Seok-yeol administration, as the previous Park Geun-hye government had attempted to abolish 재초환. However, the government reaffirmed its stance that there will be "(no suspension, let alone abolition)."

A Ministry of Land, Infrastructure and Transport (MOLIT) official stated on the 17th, "Considering controversies such as the Daejang-dong development project, we are not considering suspending 재초환."

The MOLIT announced the 'National Housing Stability Realization Plan' the day before, which aims to supply 2.7 million housing units. It was expected to include measures to ease reconstruction-related regulations, such as 재초환 and the intensity of safety inspections. However, the government postponed the announcement to the end of September and within the year, respectively.

재초환 was introduced in 2006 during the Roh Moo-hyun administration but was suspended for five years from 2013 to 2017 due to reasons such as the real estate market downturn. Before the suspension, many projects were either canceled or waited for 재초환 to be halted, so there are reportedly few actual cases of application.

The official said, "There were five cases of 재초환 collection before the suspension, all involving small-scale reconstruction projects like villas," adding, "Applying 재초환 to apartments is practically the first time."

However, specific details related to 재초환 were omitted from the current measures. Associations responded with disappointment. The Reconstruction Maintenance Project Association Alliance, launched in September last year, said, "We hoped for definite relaxation measures." The alliance, which initially united 53 associations at its founding meeting, now includes 73 associations.

The alliance had originally advocated for the abolition or suspension of 재초환. This is because the government had attempted abolition during the previous suspension period. In 2014, when Park Geun-hye was president, the Ministry of Land included 재초환 abolition in its work plan. However, the opposition party strongly opposed it, leading to a shift to suspension.

They said their belief that "tax recovery on unrealized profits is unfair" remains unchanged. However, after meeting with National Assembly and government officials around the presidential election, they said the conservative People Power Party also found abolition or suspension difficult, so they did not press further.

A reconstruction association head in Seocho-gu, Seoul, said, "With associations stepping back, the government must promptly announce measures," adding, "Some projects even considered whether to continue at the management disposition approval stage."

The MOLIT plans to propose an amendment to the 'Reconstruction Profit Recovery Act' next month. A MOLIT official said, "We understand there are demands in the market for abolition or suspension of 재초환," but added, "Since the intention to ease is firm, we will not delay."

The problem is that the likelihood of passing the National Assembly is slim, and there is a strong outlook that "expectations for regulatory easing have already been factored in, leaving no room for further house price increases." Industry insiders predict that if the scope of regulatory easing is not significant, it will be insufficient to reduce the burden on association members.

A representative from the Banpo Hyundai (now Banpo Centreville Asterium) association expressed concern, saying, "Reconstruction charges are causing uproar even in provincial areas," and warned, "If regulatory easing is half-hearted, there might be a situation where people have to sell their homes to pay taxes."

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