Red Light for Abolishing the Publicly Announced Price Realization Roadmap... Will Maintenance Projects Lose Momentum?

4·10 General Election Leads to Continued Ruling Party Minority
Policy Promotion at Livelihood Forum Expected to Face Difficulties
Experts Say "Realistic Discussions Needed Between Ruling and Opposition Parties"

In the 22nd general election, the opposition party, the Democratic Party of Korea, secured an outright majority, leading to expectations that the ruling party's construction and real estate policy initiatives will face obstacles. Representative policies anticipated to encounter difficulties in passing through the National Assembly include the relaxation of safety inspection regulations for redevelopment projects and the abolition of the roadmap for the actualization of official property prices, which President Yoon Suk-yeol sought to promote through the Livelihood Debate Forum. Experts have suggested that both ruling and opposition parties need to collaborate to ensure housing stability for ordinary citizens and to address the project financing (PF) crisis.

The scene in front of the National Assembly in Yeouido, Seoul, on the night of the 10th, the voting day of the 22nd general election / Photo by Yonhap News

Passing 17 Bills Including the Abolition of Official Price Actualization 'Looks Difficult'

According to the Ministry of Land, Infrastructure and Transport on the 11th, 17 bills are scheduled for revision following the Livelihood Debate Forum. A key bill is the amendment to the 'Real Estate Price Disclosure Act' aimed at abolishing the official price actualization roadmap established by the previous administration. The amendment sets targets for how much real estate market prices should be reflected in official price calculations and requires the establishment of achievement plans. The Moon Jae-in administration legislated this to raise the actualization rate up to 90%. However, criticism arose that the roadmap caused a sharp rise in official prices, increasing the tax burden on citizens. Official prices are used as the basis for taxation not only for holding taxes such as comprehensive real estate tax and property tax but also for health insurance premiums and basic pensions.

Accordingly, President Yoon applied an average actualization rate of 69% in the official price calculations for last year and this year, lowering it to the 2020 level before the roadmap was established. Last month, he announced the complete abolition of the roadmap. The market has raised concerns that if official prices do not reflect market prices, it would violate 'tax equity' and be seen as a 'tax cut for the wealthy' who own high-priced homes.

Delaying the mandatory safety inspection pass timing for complexes over 30 years old until before project implementation approval and streamlining the trust method through amendments to the 'Urban and Residential Environment Maintenance Act' also appear unlikely to pass easily. These were announced by President Yoon at his second Livelihood Debate Forum before the general election. Although the government's announcement suggested that easing redevelopment regulations could promote housing supply, concerns were raised that it might trigger a surge in housing prices. However, it is encouraging that both parties agreed on the 'Special Act on Maintenance and Support for Aging Planned Cities,' effective from the 27th of this month. The special act focuses on the rapid reconstruction of first-generation new towns.

Additionally, the Ministry of Land's proposal in the January 10th measures to abolish the limit on the number of urban-type residential units to no more than 300 households is an amendment to the 'Housing Act.' The relaxation of resident consent rates for small-scale housing maintenance projects (from 100% to 80%) and the increase in floor area ratio (from 100% to 120%) are included in the 'Special Act on Vacant Houses and Small-scale Housing Maintenance,' which must also pass through the National Assembly. The government is determined to proceed with the announced measures regardless of the election results. A Ministry of Land official stated, "We will actively communicate with the National Assembly to amend the laws."

Separately from the Livelihood Debate Forum, the ruling government's policy to ease the heavy taxation rate on multiple homeowners, which has been pursued since early in President Yoon's term, is also expected to lose momentum. Previously, the government announced in December 2022's '2023 Economic Policy Direction' that it would prepare a fundamental reform plan for capital gains tax surcharges and is reportedly considering complete abolition. Since related content was omitted from the tax law amendment bill last July, it was expected to be reflected this year. However, given the controversy over tax cuts for the wealthy, it is unlikely to pass easily.

Apartment complex in Seoul city / Photo by Yonhap News

Experts Urge Bipartisan Efforts for Housing Stability for Ordinary Citizens

Academics and market experts believe the election results will have limited impact on the market. Professor Kang Sung-jin of Korea University’s Department of Economics diagnosed, "Current regulations from the previous administration are still in place, and with the opposition holding a majority, it has become difficult for the ruling party to amend laws to ease regulations." However, he added, "It is hard to reverse projects like railway undergrounding, and even the Democratic Party would find it difficult to block redevelopment projects."

Kim In-man, director of the Kim In-man Real Estate Economic Research Institute, also predicted, "There will be little change. However, the ruling party and government will have no choice but to push policies through executive order amendments, such as relaxing redevelopment aging requirements."

There were also suggestions for realistic discussions on stabilizing the real estate market, including rent and lease prices. Professor Lee Chang-moo of Hanyang University’s Department of Urban Engineering said, "Rent and lease prices have risen more than expected, making housing costs more unstable. The lack of smooth housing supply is a significant burden, and active discussions on this are needed."

Experts also emphasized the need for bipartisan cooperation to support the construction industry facing real estate PF insolvency. Researcher Lee Eun-hyung of the Korea Construction Policy Research Institute said, "Both parties need to agree to support primarily high-quality PF projects. Although the opposition did not fully agree, they did not openly oppose it either. Realistically, matters that the opposition does not strongly oppose should be prioritized."

The possibility of tax reform was viewed as low. Director Kim In-man said, "Amendments to the Local Tax Act to ease acquisition tax surcharges need to be processed even with revisions, but it is uncertain whether the 22nd National Assembly will have the will to do what the 21st did not. I hope both parties continue discussions on already proposed bills to maintain policy consistency."