[Real Estate Investment] 30-Year Apartment Safety Inspection Regulation Eased, Notable Complexes to Watch

The government announced a deregulation measure on the 10th that allows apartment complexes over 30 years old since completion to start reconstruction procedures without a safety inspection. With the safety inspection regulation, which had acted as a 'shackle' on reconstruction, now lifted, expectations are rising among complexes scheduled for reconstruction. Investors seeking safety margins should particularly pay attention to reconstruction complexes with high business feasibility, such as the first-generation new towns. However, experts advise caution against 'blind investment' since most of the newly announced measures require legal amendments.

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According to the Ministry of Land, Infrastructure and Transport on the 31st, reconstruction projects can now commence once a building is over 30 years old since completion. Until now, at the initial safety inspection stage of reconstruction projects, a risk level of D to E had to be recognized to establish a reconstruction promotion committee or association. Additionally, the detailed safety inspection was costly and unclear who would bear the expense, hindering reconstruction projects. With the implementation of this policy, the safety inspection only needs to be passed before project approval. The reconstruction period is expected to be shortened by up to 3 years, and in Seoul, where rapid integrated planning is applied, it could be reduced by up to 6 years.

Redevelopment regulations are also significantly relaxed. The Ministry announced the legislative and administrative notice of 11 laws and administrative rules, including the Enforcement Decree of the Urban and Residential Environment Improvement Act, which improves redevelopment aging requirements. Currently, redevelopment projects could only proceed if at least two-thirds of the area met the aging criteria; going forward, only 60% (50% in redevelopment promotion districts) is required to start improvement projects. Areas not meeting the criteria can also be included up to 20% of the target area (previously 10%).

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New towns are considered the biggest beneficiaries of this measure. The 'Special Act on the Maintenance and Support of Aging Planned Cities' (Aging Planned Cities Act) passed the National Assembly plenary session, allowing an increase in floor area ratio, which determines the business feasibility of reconstruction. The government plans to designate at least one 'leading district' in each new town in the second half of this year to raise the floor area ratio by 50 to 200 percentage points. An increased floor area ratio allows for taller apartment buildings and more general sale units, reducing the financial burden on existing association members.

Another factor increasing the possibility of reconstruction in new towns is that their land share, another indicator of reconstruction feasibility, is higher than in other project areas. Land share refers to the land area per household (total land area of the apartment complex divided by the number of households). A larger land share allows for more general sale units during reconstruction, reducing additional financial burdens. According to an analysis by Asia Economy using real estate big data company Asil (Apartment Actual Transaction Prices), the average land share of 64 complexes in Sangye, Junggye, and Hagye-dong in Nowon-gu is 12 pyeong, whereas 69 complexes in Bundang average 17.7 pyeong.

For example, Kumho Apartment in Yangji Village 1 Complex, Bundang, has a floor area ratio of 215% and a land share of 21.4 pyeong, indicating good business feasibility and favorable location near Suinae Station on the Suin-Bundang Line. This apartment was traded for 1.53 billion KRW in August last year for an exclusive area of 84㎡. Imae Cheonggu Apartment, also near Imae Station on the Suin-Bundang Line, has a floor area ratio of 174% and a land share of 21.4 pyeong, offering a well-balanced 'triple advantage.' Hansol Village 1 Complex Cheonggu Apartment, with a floor area ratio of 155%, land share of 18.6 pyeong, and proximity to Jeongja Station on the Shinbundang Line, is another promising complex.

However, since legal amendments remain uncertain, a cautious approach is necessary. Even the relaxation of reconstruction safety inspection regulations requires amendments to the Urban and Residential Environment Improvement Act. Considering the current opposition-majority National Assembly, even if the government proposes the bill next month, it is unlikely to be passed before the April general election. The industry expects delays until the end of the year. Even if safety inspection issues are resolved, factors such as rising construction costs and disputes within associations remain variables. Kyunghee Yeo, Senior Researcher at Real Estate R114, advised, "Like when the Aging Planned Cities Act passed for first-generation new towns, another bubble situation may arise, and even if deregulation occurs in maintenance projects, disputes within associations may occur, so investors need to be cautious."

[Image source=Yonhap News]

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