Redevelopment Associations Unable to Secure Relocation Loans Surge... Maintenance Projects Come to a Halt

40 Out of 43 Sites Face Relocation Loan Restrictions
High Interest Rates on Additional Loans from Construction Companies Increase the Burden
Negotiations Stalled for Non-Core Projects

As the maximum relocation loan limit for redevelopment projects has been reduced to 600 million won and loans for multi-homeowners have been restricted, an increasing number of redevelopment associations are facing the risk of project delays.

According to the Seoul Metropolitan Government on February 2, both Noryangjin District 1 and District 3 are struggling to secure relocation loans ahead of the approval of their management and disposal plans. According to the Noryangjin District 1 association, 70% of its 961 members are either applicants for the 1+1 allocation or multi-homeowners, making them subject to the basic relocation loan restrictions.

In Noryangjin District 3, which is being redeveloped into 1,250 units, about 100 out of 518 members, or one-fifth of the total, are multi-homeowners and are therefore ineligible for relocation loans. In Bukahyeon New Town, the Bukahyeon District 2 in Seodaemun-gu, which is the second largest among the five districts with 2,320 units, is also estimated to have up to 70% of its members unable to receive basic relocation loans. In a certain reconstruction association in Gangdong-gu, 100 out of all 480 members are multi-homeowners, raising the likelihood of delays in the relocation process.

Relocation loans are funds secured to either rent a new home during the relocation period or to return key money to tenants. These loans are divided into basic relocation loans, which are secured through financial institutions with guarantees from the Housing and Urban Guarantee Corporation (HUG), and additional relocation loans, which are secured through credit enhancement by the construction company. The maximum limit for basic relocation loans was reduced to 600 million won following the government's June 27 regulation. Owners of two homes cannot receive a loan unless they dispose of one property. Furthermore, after the October 15 measures, all of Seoul was designated as a speculative overheating district, reducing the loan-to-value (LTV) ratio to 40%. For association members who own homes appraised at 1.5 billion won or less, even the maximum limit of 600 million won may not be available.

High Interest Rates and Difficult Negotiations... Limits of Additional Relocation Loans

Associations have sought to overcome these challenges by securing additional relocation loans through their construction companies. According to the Seoul Metropolitan Government, there are currently eight projects (5,900 units) that have secured additional relocation loans from their construction companies.

However, the interest rates for additional relocation loans are 1 to 2 percentage points higher than the 3-4% rates of basic relocation loans, placing a significant burden on association members. Recently, a certain association in Dongdaemun-gu failed to reach an agreement after the construction company proposed credit enhancement at an interest rate of 8.5-10%.

In redevelopment projects with a high proportion of multi-homeowners, many association members are unable to return deposits to tenants, leaving them with no other choice but to opt for additional relocation loans. An official from a reconstruction association in Dongjak-gu, Seoul, stated, "Owners of multi-unit homes have several tenants to whom they must return deposits, so they have no choice but to secure funds through additional relocation loans."

Associations that signed contracts with construction companies years ago without clearly specifying the terms for additional relocation loans are now facing increased burdens, as they must renegotiate ahead of the management and disposal plan approval. An official from a redevelopment association in Gwangjin-gu explained, "In the past, when the LTV for regulated areas was 70%, we signed contracts with construction companies to provide an additional 30% LTV through credit enhancement. Now, with the basic relocation loan LTV reduced to 40% and multi-homeowners unable to get loans at all, further negotiations are unavoidable."

It is also uncertain whether construction companies will agree to renegotiate. Credit enhancement by construction companies is not a simple guarantee but is recorded as a contingent liability in their accounting, so they must also consider the financial burden. An official from a redevelopment association in northern Seoul said, "Since the contracts have already been signed, construction companies have nothing to lose. Except for prime locations such as Gangnam or Seongsu in Seoul, it is unclear whether construction companies will be willing to shoulder the burden of credit enhancement and enter into further negotiations."

Experts warn that tightening relocation loan regulations could shrink housing supply in Seoul in the long term. Song Seunghyun, CEO of Urban & Economy, said, "The government announced a plan to supply 30,000 units in Seoul through the January 29 measures, but considering that last year there were about 600,000 rental transactions, the supply falls short of potential demand." He added, "A two-track supply strategy that combines redevelopment projects and public supply is needed." He further emphasized, "To revitalize redevelopment projects, it is necessary to first ease regulations that completely restrict relocation loans for multi-homeowners."

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