Korea Land & Housing Corporation (LH) will move in earnest in the second half of this year with a contractor-type private participation project (private participation project) that does not share revenue with private builders.
In Oct., it plans to solicit bids for contractor-type private participation projects totaling 5,100 households (1.2 trillion won) across four districts, including the third new towns (Namyangju Wangsuk, Bucheon Daejang, Incheon Gyeyang, Suwon Dangsu).
On the 25th, LH held the "LH Private Cooperation Governance Forum" on the third floor of the Gyeonggi Southern Regional Headquarters in Bundang-gu, Seongnam, Gyeonggi.
The private participation project is a project jointly implemented by LH and private construction firms. It supplies a range of public housing by leveraging private-sector technology and brands.
In just the first half of this year, LH pursued private participation projects on an unprecedented scale of 30,000 households (8.3 trillion won). This solicitation is the first private participation project since the government announced its Sept. 7 plan to expand housing supply.
At the forum, LH said it would expand the volume of solicitations for private participation projects through public-led housing supply, more efficient land use, and conversion of non-residential land. By expanding contractor-type private participation projects, it plans to strengthen LH's role as a public developer in areas such as safety and quality, and to encourage private participation by easing private operators' financing burdens.
LH plans to pursue private participation projects next month in the second half solicitation using a contractor-type model that guarantees payment of private project construction costs without revenue sharing.
In line with the government's policy to expand housing supply, it plans to carry out an additional 5,100 households, totaling 1.2 trillion won, in the second half of this year.
▲ Namyangju Wangsuk District 2, Block A6 (519 households) ▲ Namyangju Wangsuk District 2, Block A7 (563 households) ▲ Bucheon Daejang District, Block A9 (574 households) ▲ Incheon Gyeyang District, Block A16 (434 households) ▲ Incheon Gyeyang District, Block A18 (782 households) ▲ Suwon Dangsu District 2, Block B1 (705 households) ▲ Suwon Dangsu District 2, Block A1 (693 households) ▲ Suwon Dangsu District 2, Block A3 (911 households) — a total of eight blocks and 5,181 households.
LH will issue a notice next month to select private operators and, after choosing them within the year, proceed with follow-up procedures aiming to break ground in June next year.
Because the private participation project will proceed in a contractor format, LH prepared incentives out of concern that private builders might be reluctant to participate. To encourage participation by high-performing private operators, it will implement a "public-private win-win financial support system" within the year.
Through payment guarantees by the Korea Housing & Urban Guarantee Corporation (HUG), it will help operators raise project funds at lower interest rates so that construction alone can generate stable revenue. The guarantee will cover amounts that the private sector must procure first in contractor-type private participation projects.
In contractor-type private participation projects, if pre-sale proceeds fall short, private operators must procure funds first. HUG plans to develop a new financial product to allow operators to raise, at low interest rates and up to a set limit, the amounts they must inject first in the event of unsold units in contractor-type private participation projects.
It will also improve existing solicitation guidelines for private participation projects. For existing pre-sale dwellings, private operators could choose profit-and-loss sharing or contractor types, but the profit-sharing option will be removed and projects will proceed only as contractor type. Accordingly, the method for calculating project equity ratios will be deleted, and LH will bear various apportioned charges, vacancy management fees, general administrative expenses, and other costs beyond project costs.
To thoroughly ensure the safety and quality control of public housing, safety evaluations will be strengthened in solicitations for private participation projects. Previously, safety-related evaluation items such as the accident fatality rate per ten thousand workers were applied as bonus points. To enhance the effectiveness of safety evaluations, scores for the accident fatality rate per ten thousand workers and for industrial accident prevention activities will shift to a demerit system with a wider range. The aim is to strengthen private operators' responsibility by preventing safety accidents at construction sites.
To improve residential quality, a design advisory committee will be newly established. The idea is to enhance residential performance with expert advice at the design stage. Although a demerit evaluation is in place for design quality degradation factors such as north-facing layout plans and excessive core planning, critics say the evaluation lacks discrimination when there is a sole bidder. LH said it would preemptively block factors that degrade residential quality, such as north-facing layouts and excessive plan combinations. It also stressed it would tighten quality control during construction, including site management, construction quality, and defect inspections.
Builders asked whether project costs could be adjusted if expenses increase or the construction period is extended due to union strikes or heightened safety management.
Lee Dong-ju, managing director at the Korea Housing Association, said, "As enhanced safety management has become an important topic in the construction industry, safety management expenses are rising, and with revisions to laws related to unions, if a strike occurs, construction period extensions are inevitable," and added, "If the period is extended due to such unavoidable circumstances, we are curious whether the project cost for private participation projects can be adjusted."
In response, Jeong Woo-sin, LH's head of the Private Cooperation Projects Department, said, "If construction is halted and the period extended due to union strikes, there are currently no guidelines for adjusting project costs," and added, "Site management is the responsibility of the private operator, so it seems difficult to reflect this through design changes or project cost adjustments." Jeong added, "If it is due to external circumstances beyond the responsibility of specific site management, such as COVID-19, it may be possible to reflect it."
There was also a question about what responsibility builders would bear and what options exist for recouping funds if large numbers of unsold units occur in sites where profitability is lower, given that profitability can vary by housing site.
Jeong explained, "Until now, when private operators pursued LH's pre-sale housing projects, they could choose between profit-and-loss sharing and contractor types, but from last year through this year, 98% of projects were contractor type," adding, "because private operators lacked the capacity to choose the profit-sharing type."
He added, "For the private participation projects slated for solicitation in Oct., only the contractor type is available, so LH bears all responsibility if there are unsold units," while noting, "It is true that unsold units reduce pre-sale proceeds and increase the private operator's funding burden, but HUG guarantees for financing will reduce interest burdens, and LH will support that interest after completion."
Builders also asked whether the HUG payment guarantee product, to be piloted in the additional second-half private participation solicitations this year, could be applied retroactively to first-half projects, and whether there are ways to expand opportunities for small and midsize builders to participate.
Jeong answered, "We plan to apply the pilot HUG payment guarantee product starting with the business sites to be solicited in Oct., but we will actively consult with the relevant department at the Ministry of Land, Infrastructure and Transport, which manages the HUG fund, to allow retroactive application to sites that have not yet broken ground."
He continued, "We seek to encourage participation by diverse private operators to supply high-quality housing, and brand management is also one of the important areas for builders in private participation projects," adding, "It will be an opportunity for mid-tier firms to build capabilities in preparing private participation proposals, quality control, and site management."