Uncertainty Over H1 재초환 Amendment... Reconstruction Associations to Hold Rally Urging Passage

by Roh Kyungjo

Published 20 Apr.2023 08:00(KST)

Updated 20 Apr.2023 08:07(KST)

As discussions on the revision of the Reconstruction Excess Profit Recovery System (hereinafter referred to as 재초환), the last remaining major obstacle among the three major reconstruction issues, are repeatedly delayed, market confusion is intensifying. The government set a goal to complete the revision of the 재초환 law in the first half of this year, but the bill has not even been submitted in the National Assembly due to opposition within the opposition party. In response, the National Reconstruction Maintenance Project Association Solidarity (hereinafter 전재연) plans to hold a rally urging the passage of the related bill.

Apartment complex along the Han River in Seoul. / Photo by Asia Economy DB

According to the maintenance industry on the 20th, 전재연 recently sent an official letter to member associations stating, "We will hold seven rallies from May to June urging the passage of the 재초환 law revision bill, and we ask you to participate in at least three of them."

This is a reaction to the fact that the bill on 재초환, announced by the Ministry of Land, Infrastructure and Transport last September and introduced to the National Assembly by Representative Kim Jeong-jae of the People Power Party, has not yet been properly discussed. 전재연 explained the reason for the rallies, saying, "With the passage in the first half of the year uncertain, it is considered almost impossible to discuss it in the second half due to next year's general election schedule."

재초환 is a system where the state recovers part of the profits gained by the association through reconstruction. If the development profit per association member exceeds 30 million KRW, up to 50% of the excess amount is recovered as a charge. This system was introduced in 2006 during the Roh Moo-hyun administration and has continued with grace periods due to reasons such as the real estate market downturn. Associations have voiced opposition to 재초환, arguing that taxing unrealized profits is unfair. The government has also attempted to abolish it. In 2014, during President Park Geun-hye's administration, the Ministry of Land included the abolition of 재초환 in its work plan, but due to strong opposition from the opposition party, it shifted to a grace period.

The current revision bill aims to relax the exemption criteria for reconstruction charges per association member from the existing 30 million KRW or less to 100 million KRW or less, and to expand the charge rate application range from 20 million KRW to 70 million KRW. The Ministry of Land expected that the passage of the revision bill would lead to appropriate recovery of excess profits from reconstruction and the supply of quality housing through project revitalization.

However, the opposition party is concerned that the passage of the revision bill will worsen inequality. Ultimately, the bill was referred to the Land, Infrastructure and Transport Committee's bill review subcommittee in February but was not submitted in March. Whether it will be submitted at the Land Law Subcommittee scheduled for the end of this month is also uncertain. In the market, while there is hope that 재초환 will be improved in line with the government's deregulation policy, the situation is not easy.

Within the industry, voices are growing that the 재초환 regulation should be abolished to revitalize reconstruction in line with the government's policy. Eunhyung Lee, a research fellow at the Korea Construction Policy Institute, said, "When 재초환 was first introduced, the target was five-story apartments built in the 1970s, but the current situation targets apartments built rapidly in the 1980s and 1990s, which is different. Reconstruction apartments are not only in so-called 'wealthy neighborhoods,' and there can actually be cases where people sell their homes and pay taxes, so the National Assembly and government should speed up the processing of the revision bill."