[Exclusive] Supply of 150,000+ Housing Units... Revising the Reconstruction Excess Profit Recovery System

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[Asia Economy Reporter Jang Sehee] The government plans to unveil a super-strong measure this week to ease reconstruction charges in order to revitalize housing supply. If a union member profits from reconstruction, they must pay a charge of up to 50% of the profit after deducting the rise in nearby house prices and costs, but the government intends to lower this rate to activate reconstruction. This is interpreted as a clear supply signal, as it reverses the government's previous stance of thoroughly recovering real estate profits. President Moon Jae-in previously hinted at bold measures, saying, "We will prepare extraordinary measures for real estate supply, including strengthening incentives." The government also plans to supply ‘150,000 homes + α’ in the metropolitan area, including Seoul city center station areas, semi-industrial zones, and new housing site developments.

According to the Ministry of Land, Infrastructure and Transport and the Ministry of Strategy and Finance on the 1st, the government will announce the 25th real estate measure around the 4th, centered on these contents.

A government official said, "We are reviewing various regulatory relaxation measures to supply housing in downtown Seoul," adding, "To induce reconstruction activation, we will prioritize easing regulations such as the reconstruction excess profit recovery system."

The core of easing the reconstruction excess profit recovery system is to lower the charge rate to activate reconstruction. Currently, if the excess profit per person exceeds 30 million KRW, a progressive tax is imposed with a charge rate increasing in 10% increments by bracket, but lowering the charge rate by bracket will also reduce the maximum charge rate. Since development profits should be shared appropriately for smooth housing supply, the government believes that if the charge payment rate decreases, not only public but also private participation will increase, creating a strong incentive effect for reconstruction.

The reconstruction excess profit recovery system was implemented in 2006 during the Roh Moo-hyun administration. Its purpose was to collect excess profits generated from reconstruction projects to prevent privatization of development profits and to promote housing price stability and social equity.

Kwon Dae-jung, a professor in the Department of Real Estate at Myongji University, said, "Since the excess profit recovery system applies only to reconstruction, lowering the rate is expected to have some effect," but added, "However, it is also necessary to partially ease the safety inspection regulations, which are the first hurdle of reconstruction projects, to lower the entry barrier for reconstruction."

Since President Moon emphasized at last month’s New Year press conference that "We must supply beyond the market’s expected level through bold development of new housing sites," it is expected that new housing site development will also be partially included. Currently, Gwangmyeong and Siheung districts are mentioned as places capable of supplying more than 100,000 households, and areas around Goyang City and Gimpo Gochon are also considered strong candidates.

Additionally, the government plans to temporarily allow the central government to have reconstruction and redevelopment project approval authority, which was previously granted only to local government heads, to speed up securing supply through reconstruction and redevelopment. There is also talk of lowering the resident consent rate for establishing reconstruction unions from the current 75%.

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