"Floor Area Ratio System Must Be Reformed to Improve Project Feasibility in Aging High-Density Residential Areas"

Geonsanyeon Proposes Revamping Aging High-Density Residential Areas with 'Current Floor Area Ratio + α' in Housing Supply Activation Policy Report
Suggests 'Pension-Linked Redevelopment Projects' to Alleviate Contribution Burden
Also Mentions Abolishing Heavy Capital Gains Tax on Multiple Homeowners

Experts have suggested that to expand urban housing supply, the floor area ratio (FAR) system for aging and high-density residential areas with low profitability should be restructured, and that public sector intervention is necessary. They also emphasized the need to introduce redevelopment projects linked to housing pensions for association members who find it difficult to raise contribution fees, and suggested considering the abolition of heavy capital gains taxes on multi-homeowners to alleviate downward pressure on the real estate market.

Seoul City approved the architectural plan for the reconstruction project of Sanggye Jugong Complex 5 at the 15th Architecture Committee meeting. The photo shows Sanggye Jugong Complex 5 in Nowon-gu, Seoul, on the 31st. Photo by Jinhyung Kang aymsdream@

On the 18th, the Korea Research Institute for Human Settlements proposed these policies in a report titled "Policy Tasks for Revitalizing Housing Supply and Stabilizing the Real Estate Finance Market."

Due to the real estate project financing (PF) crisis and rising interest rates, funding difficulties have increased, causing a significant contraction in housing supply last year. Last year, the number of permits issued was 390,000 units, a 25.5% decrease compared to the previous year. Housing starts were 210,000 units, down 45.4% from the previous year. There are concerns that the Yoon Seok-yeol administration’s goal of supplying 2.7 million housing units may face setbacks. As the real estate market weakens, redevelopment projects have become less profitable, and conflicts over construction costs and disputes among association members have led to delays or suspensions in many projects.

Floor Area Ratio Changes in General Residential Areas of Seoul (Data=Konsanyeon)

The Korea Research Institute for Human Settlements suggested that, under these circumstances, it is necessary to set the current floor area ratio as the baseline FAR and grant an additional '+α' as the upper limit to secure profitability in aging residential areas. In the past, low-rise apartments with a FAR of 180% or less could be reconstructed with a refund of liquidation payments, but many ongoing reconstruction projects now involve mid-rise apartments of 10 floors or more or areas with a FAR around 200%, requiring additional contributions. Among apartments built in the 1990s with medium to high density that have reached the reconstruction eligibility period, those with a current FAR exceeding 250% face difficulties in project advancement.

The institute analyzed, "If additional FAR is granted in exchange for securing corresponding public benefits, social controversies can be reduced," and added, "Encouraging reconstruction instead of remodeling can also help secure infrastructure and reduce social inefficiencies."

They also proposed activating public participation-type redevelopment projects in areas lacking profitability. Since there is a growing gap between areas where redevelopment is easy and where it is needed, public intervention is necessary in places where autonomous project advancement is difficult. Establishing funds and utilizing urban regeneration and housing welfare budgets to provide financial support can reduce the financial burden on public project implementers. Measures such as transferring or converting national and public land into equity without charge, as well as easing urban and architectural regulations, can also help improve project viability.

Additionally, a redevelopment project linked to housing pensions was proposed to allow owners such as retirees or elderly people who lack the means to raise contribution fees to continue living in their homes. This model involves transferring ownership to the Korea Housing Finance Corporation at a certain point during the redevelopment project, with the corporation initially bearing any additional contributions and adjusting pension amounts accordingly. Another option is to grant rights to sell shares and preemptive purchase rights. After selling shares, if certain conditions are met, the owner or their immediate family can repurchase the shares, or heirs can have priority in purchasing shares after the owner’s death. The institute explained, "This can improve residents’ housing stability and satisfy the demands of elderly people who hesitate to sell shares due to inheritance concerns."

Furthermore, the institute identified the abolition of heavy capital gains taxes on multi-homeowners as a tax reform measure to stimulate demand in the real estate market. The heavy capital gains tax system for multi-homeowners was introduced in 2004, abolished in 2014 due to a sluggish housing market, and reinstated in 2017. Buyers remain highly attentive to whether the government will grant exemptions each year when tax laws and enforcement decrees are revised.

The institute stated, "It is reasonable to impose tax rates at the general rate without the heavy surcharge," and added, "If social consensus on issues such as tax cuts for the wealthy is insufficient, it is necessary to abolish the surcharge and improve the system to be predictable, even if tax rates are adjusted based on holding periods."

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