The government reaffirmed its position that there are no exceptions to the regulations regarding relocation loans for reconstruction and redevelopment business sites, and it is expected that the pace of maintenance projects in urban areas will slow down somewhat.
Maintenance business sites are currently calculating the additional relocation loans they can receive from construction companies as relocation loan amounts are capped at a maximum of 600 million won. The additional relocation loans that construction companies can provide tend to have relatively high interest rates, which could increase the burden on maintenance project members. In some unions with lower project viability, it is difficult to provide additional relocation loans that exceed the appraised value of the properties.
Concerns have been raised that noise regarding relocation expenses during the relocation phase could slow down maintenance projects and delay the supply of new dwellings in urban areas.
According to the government on the 4th, financial authorities received opinions from the National Assembly and others regarding the need for amendments related to relocation loans, but it has been confirmed that there are no plans to change the government's stance on relocation measures. During the household debt inspection meeting chaired by the Financial Services Commission on that day, there were no announcements regarding the relocation measures either. A strong sentiment that there can be no exceptions due to the possibility of speculative demand arising from relocation loans has been reported.
A government official said, "We have discussed relocation loans, but nothing will change," and noted, "The household debt inspection meeting was held to assess the implementation of the system, and the relocation measure contents will not be announced."
Relocation loans are borrowed by members participating in reconstruction and redevelopment projects to cover the costs required for moving to new dwellings during the construction period. Typically, members use relocation loans to find dwellings to live in on a lease instead of the existing housing being demolished, or to pay off mortgage loans on the existing housing. They may also use relocation loans to refund the deposits of tenants living in the existing housing.
However, with the announcement made on the 27th of last month regarding household debt management measures, which includes a restriction on relocation loans to 600 million won per one-household principle, maintenance business sites are experiencing confusion. For multi-homeowners, the maximum relocation loan they can access has been reduced to 0 won. Although business sites with approved management disposal plans are exempt from this restriction, sites such as Hannam 2 District, Gaepo Jugong 5, 6, and 7 complexes, and Noryangjin 1 district have become unable to utilize relocation loans due to the current lending restrictions.
These business sites are considering utilizing additional relocation expenses provided by construction companies. Additional relocation expenses are not included in this loan regulation as they are provided by construction companies under the name of sales promotion expenses. The government believes that even if relocation loans are limited, it will still be possible to proceed with projects through additional relocation expenses. A Financial Services Commission official said, "The additional relocation expenses provided by construction companies do not fall under the category of relocation loans borrowed from financial institutions."
However, in the case of additional relocation expenses, the interest rates are higher than those of loans from commercial banks, leading to an increased burden on members borrowing these funds. According to the Urban and Residential Environment Maintenance Act, construction companies are permitted to support relocation loans for reconstruction and redevelopment business sites, but providing them for free or at lower interest rates than those of commercial banks is prohibited. Recently, some additional relocation loan interest rates at certain business sites have reached around 6%, which means members will inevitably face higher interest burdens than those from financial institutions.
Even if they endure high interest rates, it is difficult to fully cover the insufficient relocation expenses solely with additional relocation expenses. Business sites with higher viability have indicated they would support relocation expenses exceeding the loan-to-value ratio (LTV) of 100% from construction companies, but for those that do not, it is burdensome to excessively increase additional relocation expenses.
A construction company official explained, "When construction companies lend project loans, they consider around 1 billion to 2 billion won per household under the guise of relocation expenses, but practically, the borrower is the union, making it difficult for the union to continually loan relocation expenses." They added, "Typically, the loan will be evaluated based on appraised values of the properties, making it hard for the union to borrow above the prices of pre-sale rights."
With the restrictions on loans for final payments and conditional lease financing also in place, it seems that unless there are individuals with cash reserves, it will be difficult to participate in maintenance projects. Another construction company official noted, "In large maintenance business sites, support from large construction companies will ensure the project can proceed somehow," but added, "The pace may slow down in business sites where the construction company's support capacity is small." They continued, "In future maintenance projects, how much additional relocation expenses large construction companies can support will be a crucial factor."