The government's redevelopment excess profit recovery system (recovery system) is expected to gain traction following the appointment of the vice minister of land, who has advocated for the recovery of development profits. The recovery system is a system that recovers up to 50% of the excess amount if the development profit per member of the association exceeds 80 million won during the redevelopment process.
Since the implementation of the 'Act on the Recovery of Excess Profits from Redevelopment' in 2006, opinions on its abolition and continuation have been divided, with the government repeatedly suspending and re-implementing the imposition of fees and amendments with each administration. A legal amendment reflecting the relaxed imposition criteria was made in March 2024, and currently, the city of Seoul and its autonomous districts are working to calculate fees for each maintenance project association.
According to the maintenance industry, the Ministry of Land, Infrastructure and Transport, and the city of Seoul on the 1st, each autonomous district in Seoul is working to finalize fees for associations that are subject to the recovery system based on directives from the ministry. Seoul expects major complexes in Gangnam to be subject to the recovery system. To determine fees by autonomous district, they are examining the price difference between the time of association establishment approval and the completion date, as well as going through verification from the Korea Real Estate Board (REB) and discussions with the Real Estate Price Disclosure Committee.
The maintenance industry predicts that the fees imposed by the recovery system, which have been delayed for nearly 20 years, are likely to be charged within this year. This is because Lee Sang-kyung, a professor at Gachon University who has strongly advocated for the recovery of development profits, has been appointed as the Vice Minister in charge of the recovery system.
This vice minister is a scholar who has consistently argued that development profits should be recovered and returned to the public. He published 'Public Development Profit Return System: Characteristics and Implications of the Daejang-dong Development Project' (Gyeonggi Research Institute) in January 2019. Also, in March 2019, he presented 'Characteristics of the Daejang-dong Development Project and Implications for the Public Development Profit Return System' at the 'Public Development Profit Return System Forum' hosted by Gyeonggi Province and the Gyeonggi Research Institute. In October of the same year, he co-authored and presented a report titled 'In-depth Study of Public Return Cases of Development Profits' with Jeong Min-yong, then head of the strategic business office of the Seongnam Urban Development Corporation.
In research and presentations with Gyeonggi Province, the Gyeonggi Research Institute, and the Seongnam Urban Development Corporation, this vice minister evaluated the Daejang-dong development project as a return of public development profits. He also argued that for projects where there is a possibility that excessive development profits would accrue to the private sector, the 'public return system' should be actively utilized. The public return system is intended to recover expected development profits from large-scale development projects in Gyeonggi Province and use the funds for expanding infrastructure and welfare benefits for residents.
The presidential office stated that the reason President Lee Jae-myung appointed this vice minister was because he is a representative reform advocate who has strongly argued for blocking real estate windfall profits and recovering development profits, and that he has continuously advocated for a paradigm shift in policies that recognize housing not as ownership but as a right, including the expansion of customized public housing.
A source in the maintenance industry noted, 'A policy authority with a stance completely different from that of the redevelopment associations advocating for the abolition of the recovery system has come in.' Song Seung-hyun, head of the urban and economy, said, 'With this vice minister's appointment, there is a possibility that the government will adopt a stronger perspective towards the public domain in maintenance projects and may present a clearer direction regarding the recovery of development profits and contributions.' Song further added, 'There is also a possibility that the project could be delayed due to members of the association not accepting recovery system fees, leading to a supply shortage of dwellings.'
Many views suggest that the possibility of abolishing the recovery system has almost disappeared. In June of last year, Kim Eun-hye, a member of the People Power Party, proposed a bill for its abolition. Professor Kim Jin-yu of the Department of Urban Transportation Engineering at Gyeonggi University stated, '(Considering the current government's position) it is hard for the recovery system to completely disappear,' adding, 'A policy authority who places importance on public rental, contributions, and recovery of development profits has been appointed, and this aspect will be strengthened. Ultimately, revitalizing maintenance projects will not be easy, and it is important to balance public interest and project viability.'
A government official stated, 'The recovery system has been implemented since March 2024 using relaxed imposition criteria, and a revised bill has been proposed in the National Assembly.' The official added, 'The government plans to observe discussions in the National Assembly and communicate going forward while implementing the system.'
Claims are still being made that the recovery system is a bad law that hinders the progress of maintenance projects. A chairperson of a redevelopment association in Seoul stated, 'The imposition of recovery system fees is taxation on unrealized profits, which does not logically make sense,' adding, 'Taxation occurs when profits are realized, and estimating taxes on unrealized profits is unlawful.'
According to the Land Infrastructure and Transport Committee of the National Assembly, there are 68 projected complexes nationwide subject to fee imposition, with an average anticipated fee per person of 100.5 million won. Among these, 47 are in the Seoul metropolitan area. Fees are calculated based on the price difference between the time of association establishment approval and the completion date. Fees are exempted up to 80 million won, and long-term holders (based on one dwelling) for over 20 years receive a maximum reduction of 70%. The start point for calculating excess profits is the date of association establishment approval.