The Lee Jae-myung government has launched with a 'half expectation, half concern' atmosphere in the apartment supply market. While President Lee Jae-myung has stated that he will emphasize 'expanding supply,' there is significant tension in the existing apartment market regarding reconstruction and redevelopment. There are also concerns that it could become the 'first apartment' subject to the Excess Profit Recapture System for Reconstruction (also known as 재초환). In Seoul, where 80% of the supply comes from maintenance projects, there are strong calls to 'ease regulations' related to reconstruction.
According to the maintenance industry on the 4th, discussions about the Excess Profit Recapture System for Reconstruction are heating up. The Excess Profit Recapture System recaptures up to half of the excess profits per member of the association if the excess profit from reconstruction exceeds 80 million won. Revived in 2018 under the Moon Jae-in government, there have been no cases of it being applied yet. This is because the previous government and the ruling party at the time, the People Power Party, pushed for its abolition, leading district offices to refrain from actively applying it.
However, an atmosphere is developing that the possibility of the Excess Profit Recapture System being actually enforced cannot be ruled out. This is because President Lee Jae-myung indicated during his campaign that the system should be maintained. During his candidacy, President Lee said, "The excessive profits obtained through reconstruction should be returned to society."
In the market, there are strong voices calling for the abolition of the Excess Profit Recapture System to expand supply. This is because, in Seoul, where demand is concentrated, new supply heavily depends on maintenance projects, including reconstruction. Among the 38 apartment complexes sold in Seoul last year, 29 were supplied through maintenance projects. Based on the number of complexes, this accounts for 76.3%, while the number of households is 85.5%. According to the Ministry of Land, Infrastructure and Transport, as of last year, the total number of complexes subject to the reconstruction burden fee nationwide reached 68. Each member of the association is expected to be charged an average of about 100 million won, with some estimates indicating an average burden fee reaching up to 450 million won per person.
Reconstruction associations are beginning to prepare in advance, anticipating that the Excess Profit Recapture System could be enforced when the new government takes office. According to the maintenance industry, the National Association of Reconstruction and Maintenance Project Associations (전재연), which includes about 70 reconstruction project associations nationwide, sent an official document to the Ministry of Land, Infrastructure and Transport early last month, demanding a halt to the imposition of the reconstruction burden fee. The assertion was made that the Korea Real Estate Board's housing price statistics used as the basis for calculating the fee were manipulated, as revealed by the Board of Audit and Inspection in April. Additionally, a petition calling for the abolition of the Excess Profit Recapture System was posted on the National Assembly's public petition site last month, attracting more than 50,000 signatures.
A member of a reconstruction association in Seoul said, "There are talks that a 'first complex subject to the Excess Profit Recapture System' might emerge from Gangnam," adding, "I understand that district offices have been cautious in imposing fees, as the system's continuity had been uncertain."
Park Hapsu, a guest professor at the Konkuk University Graduate School of Real Estate, noted, "If the Excess Profit Recapture System is enforced, the associations will likely try to slow down the project pace to avoid it" and added, "The Excess Profit Recapture System represents a significant obstacle to supply through reconstruction, and its abolition should be considered."
Additionally, a system that restricts the transfer fee of reconstruction association members limited to speculation overheated areas is also pointed out as requiring abolition. Currently, only homeowners who have owned their property for more than 10 years and lived in it for more than 5 years can sell their homes. This system is said to have a serious side effect of reducing the supply of homes for sale, leading to decreased asking prices. There are also claims that the 'price ceiling system' applied in the three districts of Gangnam and Yongsan is problematic, as it creates a 'lottery subscription' effect, prompting discussions about maintaining the system.
There are also opinions that if the new government fulfills its promises for maintenance projects, it could lead to faster project execution. Typical examples include the introduction of a rapid permit system, inclusion of construction cost disputes in the urban conflict mediation committee's review subjects, and promotion of relaxation of floor area ratio and site coverage regulations.
Ham Young-jin, head of the Real Estate Research Lab at Woori Bank, noted, "The next government also has the will to supply dwellings through maintenance projects in Seoul and the metropolitan area, but there is a high chance it will demand a degree of public interest." He added, "Rather than abolishing the Excess Profit Recapture System, it seems more likely that the focus will be on rationalizing the system or easing regulations."