Why Did the Samsung-dong Row House Association Remove the 'Interest Rate Cap' Condition for Financial Institutions?

Bid Deadline on 24th for Garojutaek Union in Samsung-dong 98 Area
Removed 'Interest Rate Cap' Condition After First Bid Failed
Hard to Gain Advantage from Financial Firms Due to Base Rate Hike
Relocation Incentives Needed for High-Price and Multi-Home Union Members

Photo is unrelated to the article content [Image source=Yonhap News]

[Asia Economy Reporter Hwang Seoyul] The Garojutaek Redevelopment Project Association in the area of Samseong-dong 98 has removed the interest rate cap condition from the project cost PF loan announcement. Amid the ongoing high interest rate environment, why did they eliminate the interest rate ceiling, inevitably increasing the burden on the association members?

According to the national comprehensive electronic procurement system, Narajangteo, the Garojutaek Redevelopment Project Association in Samseong-dong 98 closed the bid for selecting a financial institution to handle the project cost loan on the 24th. This was the second bid closure this year, with two financial companies participating. Previously, the first bid for selecting a financial institution for the project cost PF loan, announced on the 5th, was canceled due to no participating financial institutions. Industry insiders believe the reason for the change in the second bid situation was the removal of the 'interest rate cap' condition stated in the first announcement.

According to the association, the first bid guidelines included Article 13, 'Decision of the successful bidder and obligations and duties of the contracted company,' which stated that "when the board of directors decides on a bidder to be submitted to the general meeting, it must not exceed the proposal content of the financial institution that was previously rejected by the general meeting." This meant that the interest rate generated by the PF loan was limited to a maximum of 6.5%, according to the association. However, about a month before the announcement, on the 13th of last month, the Bank of Korea implemented a big step rate hike, leading financial institutions to judge that the interest rate would not provide an advantage equivalent to the base rate increase, resulting in their non-participation in the bid.

Additionally, there was a hidden reason why the association had no choice but to opt for high-interest loans by removing the interest rate ceiling. The issue of relocation loan arose because the project site is located in Samseong-dong, Gangnam-gu. Among the total 77 association members, about 60 have previous housing appraisal prices exceeding 1.5 billion KRW. Currently, housing mortgage loans are not possible for those owning homes valued over 1.5 billion KRW. Although exceptions to loan regulations exist for reconstruction and redevelopment association members who have received management disposition approval, these apply only to single-homeowners and members who have resided for more than one year before the association establishment approval.

Photo by Seoul Metropolitan Government Maintenance Project Information Mongttang

Therefore, the association aimed to include relocation promotion loan in the scope of project cost loan services to address this issue. Since the project is currently at the implementation approval stage (including management disposition approval plan), rapid relocation of association members is necessary to proceed to the next phase. An association official stated, "Many members currently cannot receive relocation loans, so there is a high demand for this," adding, "To cover this with project funds, we proceeded with high-interest loans."

In the past, construction companies participating in redevelopment project bids promised various benefits to associations. However, an amendment to the Urban and Residential Environment Improvement Act (Urieongbeop) will be enforced from December, prohibiting construction companies from providing relocation expenses, moving costs, relocation promotion fees, complaint handling fees, or any monetary or property benefits unrelated to construction during the contractor selection process.

Attorney Kim Yerim of Deoksu Law Firm said, "In Gangnam reconstruction cases, since housing prices exceed 1.5 billion KRW, relocation loans themselves are not available, and direct support from construction companies is also prohibited by guidelines," adding, "To secure relocation funds, associations sometimes proceed with loans indirectly or support through establishing SPCs (Special Purpose Companies for securitization)."

Meanwhile, in the area of Samseong-dong 98, Gangnam-gu, an apartment complex consisting of three buildings with three basement floors to ten above-ground floors and 118 households (including 12 public rental units) is planned through the Garojutaek Redevelopment Project.

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