[Taemin Ryu's Real Estate A to Z] Is the Trust Method the Solution for the 'Second Dunchon Jugong'?

Trust Method and Cooperative Establishment Procedures Omitted, Shortened by 2-3 Years
High Fees Increase Resident Burden... 4% of Sale Price Required
Possibility of Resident Requests Being Excluded Still Remains

View of the Dunchon Jugong reconstruction site in Gangdong-gu, Seoul. Photo by Moon Honam munonam@

[Asia Economy Reporter Tae-min Ryu] To prevent a second Dunchon Jugong incident, which experienced construction stoppages due to conflicts between contractors and associations, the government has launched a plan to promote maintenance projects using the trust method. The trust method can shorten the project period by omitting some procedures such as establishing an association, and it is gaining residents' interest due to its high level of expertise in the project. However, there are concerns that promoting the trust method is unrealistic because of expensive fees and issues where residents' opinions are excluded.

Private maintenance projects are divided into the association method and the trust method. The association method involves an association composed of residents, including an executive team with a chairman. The association directly handles all project procedures, from selecting contractors to obtaining permits, holding overall control and leadership of the project, with decisions made through general meetings. In contrast, the trust method involves a trust company conducting the project on behalf of the owners for a fee. The trust company holds overall control and leadership of the project, and decisions are made through a general meeting of all landowners.

Typically, the trust method shortens the project period by about 2 to 3 years compared to the association method. Unlike the association method, the trust method omits several procedures such as forming a promotion committee, obtaining approval for association establishment, and selecting contractors. Additionally, in the 'National Housing Stability Realization Plan' announced by the government on the 16th, it was stated that for projects implemented by trust companies, if a majority of landowners wish, the maintenance plan and project plan can be integrated and processed together. This is expected to further shorten the project period for the trust method.

The trust company's financing capability and expertise are also considered strengths. Unlike the association method, where initial costs are borne by landowners, the trust method covers initial costs with the trust company's own funds. This minimizes the financial burden on residents. Furthermore, trust companies are evaluated to enhance project stability through expertise built from extensive experience.

However, industry reactions to the promotion plan are cold. Adopting the trust method requires paying about 4% of the total sales price as a fee for service performance. Depending on the complex, this can amount to hundreds of billions of won, causing residents to feel a financial burden. This is why only about 4% of domestic maintenance projects are currently implemented by trust companies.

Concerns about conflicts between associations and trust companies also arise. To promote the trust method, the government plans to include guarantees of residents' termination rights, clarification of trust termination timing, and specification of residents' contractor selection rights in the standard contract within this housing stability realization plan. Many existing trust contracts do not allow associations to terminate the contract or impose huge compensation fees if terminated, and the government aims to improve these issues. However, the prevailing view is that the standard contract cannot forcibly regulate the actual contract contents.

Kim Ye-rim, a lawyer at Deoksu Law Firm, said, “The trust method has been neglected because fees are expensive and residents' demands were not properly reflected,” adding, “Unless these fundamental problems are resolved, maintenance project complexes will have no incentive to participate in the trust method, making its promotion difficult.”

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