Local Governments and Public Enterprises to Raise Acquisition Prices for 'Redevelopment Rental Housing'

Set at 80% of the Basic Construction Cost, approximately 1.4 times the Current Standard Construction Cost
Establishment of Alternative Penalty Criteria for Construction Contractor Bid Restrictions

The 'Moahouse' redevelopment project promoted by the Seoul Metropolitan Government has begun its first construction in the Hanyang Yeonrip area of Gwangjin-gu. Following the approval of the integrated review last June in accordance with the 'Moahouse Project Implementation Plan Establishment Standards,' construction started eight months later. The photo shows the Moahouse construction site in Gwangjin-gu, Seoul. Photo by Jinhyung Kang aymsdream@

From July 31, the acquisition price paid to the association will be increased when public entities such as local governments and public corporations take over rental housing that is mandatorily constructed in redevelopment projects.

The Ministry of Land, Infrastructure and Transport will announce the enforcement decree and enforcement rules of the "Urban and Residential Environment Maintenance Act," which include these details, for legislative notice from May 30 to June 10. The amendment reflects the "Construction Market Recovery Support Plan" and follow-up measures following the legal revision.

In redevelopment projects, rental housing must be constructed within 20% of the newly built housing, with the ratio determined by local government notifications. The rates are set at 15% for Seoul, 10% for Busan, and 5% for Gyeonggi, Incheon, and Daegu. There is no mandatory rental housing in reconstruction projects.

Currently, the acquisition price for mandatory rental housing in redevelopment projects is based on the standard construction cost for buildings and the appraised value for land. As a result, the standard construction cost, which is calculated for rental housing management purposes, had limitations in reflecting the rise in construction costs.

Therefore, the basis for calculating the acquisition price of buildings will be changed to the basic construction cost. The basic construction cost is the cost applied under the price ceiling system for sale prices and is calculated every six months reflecting changes in construction costs. The acquisition price will also be raised to about 80% of the basic construction cost (approximately 1.4 times the standard construction cost), considering the recent increase in construction costs.

For example, in a redevelopment project in Seoul with 1,000 households (number of newly built houses) and 600 association members, it is estimated that the increase in the acquisition price for mandatory rental housing will reduce the burden per association member by about 7 million KRW.

Additionally, the acquisition price for public rental housing to be constructed due to the increase in floor area ratio in redevelopment and reconstruction projects (50% of the relaxed floor area ratio) will also be raised. Currently, the acquisition price for rental housing due to floor area ratio increases is set by law (Urban Maintenance Act) based on the standard construction cost.

A legal amendment to raise this to 80% of the basic construction cost, the same as for mandatory rental housing in redevelopment projects, will also be promptly pursued (to be proposed within the first half of the year).

Furthermore, if acts of bribery by construction contractors or others are detected, the restriction on bid participation by the mayor or governor has been made mandatory. In such cases, a fine may replace the bid participation restriction once, and the scope of this fine is to be set within 20% of the construction cost by enforcement decree.

The enforcement decree has subdivided the penalty ranges according to the amount involved in the violation so that local governments can impose fines differentially. To receive and process reports on bribery acts by construction companies, local governments can establish and operate a reporting center within the department overseeing maintenance projects.

Kim Gyu-cheol, Director of the Housing and Land Office at the Ministry of Land, Infrastructure and Transport, stated, "This improvement reflects the field's opinion that although construction costs have recently risen, the cost of rental housing received by associations has not been realized, which is unreasonable. We will continue to gather opinions from experts, local governments, and the industry and continuously improve necessary matters for the smooth promotion of maintenance projects."

The full text of the amendment can be found on the Ministry of Land, Infrastructure and Transport website under 'Information Plaza - Legal Information - Legislative Notice & Administrative Notice.' Opinions can be submitted by mail, fax, or through the Ministry of Land, Infrastructure and Transport website.

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