Is Reconstruction and Redevelopment a Jackpot Lotto? The Corruption Trap That Destroys the Dream of Owning a Home

As the police have launched a forced investigation into the Cheongnyangni 4 District redevelopment project in Dongdaemun-gu, Seoul, the chronic issue of corruption related to redevelopment and reconstruction in our society has once again come under scrutiny.

Because enormous profits are at stake, corruption occurs even before the full-scale project begins, and the fact that it is a private sector area limits public intervention despite various suspicions is pointed out as a cause. To eradicate chronic corruption, it is argued that self-purification efforts and institutional improvements are needed not only in the construction industry but throughout society.

The Cheongnyangni 4 District redevelopment project came under police investigation over allegations that current and former public officials from Dongdaemun-gu Office, who were in charge of related tasks in 2017, purchased unauthorized buildings to obtain pre-sale rights and received preferential treatment to be allocated larger apartments. The chairman of the Cheongnyangni 4 District redevelopment promotion committee was indicted last year on charges of providing preferential treatment by granting pre-sale rights to those without shares in the redevelopment site during the project process.

Perspective view of Cheongnyangni 4 District Urban Environment Improvement Project. [Photo by Dongdaemun-gu Office]

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In redevelopment and reconstruction projects involving construction companies, associations, and government offices, collusion issues frequently arise. Redevelopment and reconstruction associations, composed of landowners or homeowners, hold tremendous power as they decide key matters such as selecting designers and construction companies. In Banpo, Seoul, Hyundai Engineering & Construction and its executives were fined in the first trial for allegedly distributing bribes exceeding 100 million KRW to association members to secure apartment reconstruction project rights.

Conflicts within associations are also common. At Eunma Apartment in Daechi-dong, Gangnam-gu, Seoul, allegations of fraudulent elections of the reconstruction association chairman led members to file a provisional injunction lawsuit to suspend the chairman’s duties. Although the court ruled in favor of the injunction, the association’s appeal is expected to delay the project for some time.

Seodaemun-gu, Seoul, recently published a 'Redevelopment-Reconstruction White Paper' aimed at properly promoting various urban maintenance projects such as redevelopment and reconstruction. Through the white paper, Seodaemun-gu analyzed the 'status and problems of maintenance projects' and proposed 'improvement plans for association management.'

According to the white paper, an analysis of 326 'Seoul City maintenance project association-related press releases' from 2003 to 2020 over 18 years showed that 67% of problems occurred before the project implementation approval stage. The timing of problems by major promotion stages was highest at association establishment approval (38%), followed by contractor selection (19%), project implementation approval (11%), and promotion committee (10%).

In other words, most problems arise before the first groundbreaking, with bribery accounting for 27% of problem types, followed by exaggerated or illegal publicity (14%), bribery offering (12%), and embezzlement (9%). This indicates frequent lobbying to be selected as the construction company at the initial stage.

Experts pointed to institutional limitations as the cause of widespread corruption in redevelopment and reconstruction projects. Jin-Hyung Seo, president of the Korea Real Estate Management Association and professor at Gyeongin Women's University, said, “Redevelopment and reconstruction projects ultimately belong to the private sector, i.e., the association members, so there are limits to public intervention,” adding, “It is a structure where management and supervision through administrative measures are difficult to properly implement.”

Seung-Hyun Song, CEO of Urban and Economy, said, “Since these projects can generate large profits, collusion and corruption are inevitable,” and added, “It seems to be not just their problem but also an institutional limitation.”

They unanimously agreed that self-purification efforts by all parties involved in the project, including the government, construction industry, and associations, are necessary. President Seo suggested, “Basically, association members need to take an interest in their projects, and institutional improvements are needed so that people with expertise can become association executives,” emphasizing, “It should start with transparent association management.”

CEO Song also stressed, “Although most projects are private, public intervention is necessary to secure public interest,” and added, “Since illegal profits exceed the level of punishment, corruption continues, so it is necessary to strengthen penalties.”

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