Government policies to curb real estate demand are intensifying confusion at redevelopment and reconstruction sites. The June 27 and Oct. 15 measures reduced the relocation loan limit for reconstruction and redevelopment association members to 600 million won and restricted the transfer of association member status by designating regulated areas and land transaction permit zones.
Despite these regulations, projects with strong business potential, such as in Yongsan, Seoul, are gaining speed as financial institutions line up to arrange additional relocation loans. In contrast, projects in the pre-association stage located in non-Han River belt areas such as Nowon are losing momentum after the regulations.
According to the construction industry on the 4th, as of the 27th of the previous month, Daewoo E&C, the builder for Hannam District 2, closed bidding for approximately 582 billion won in additional project funds (additional relocation loans), drawing participation from a total of seven financial institutions. They were Mirae Asset Securities, KB Securities, BNK Investment & Securities, a consortium of Shinyoung Securities, IM Securities, DB Financial Investment, and Leading Investment & Securities.
Typically, relocation loans are raised from banks with a guarantee from the Korea Housing & Urban Guarantee Corporation (HUG). Additional relocation loans are needed to cover shortfalls, and these are arranged and raised by securities firms under the construction company's lead.
Under the government's June 27 measures, the per-household relocation loan limit is capped at 600 million won, reducing the size of relocation loans banks can offer.
Hannam District 2's relocation loans were also reduced from 800 billion won to 400 billion won. As a result, the size of additional relocation loans needed by the association grew by about 45% to 582 billion won. In response, Daewoo E&C will provide a credit line for the additional relocation loans for Hannam District 2.
Earlier, in September, 17 financial institutions participated in the bidding for base relocation loans and project financing. Woori Bank (400 billion won) and KB Securities (802.5 billion won) were selected as the base relocation loan provider and the project financing lender, respectively.
However, even within Seoul, redevelopment and reconstruction business sites in non-Gangnam and non-Yongsan areas such as Nowon and Dobong are stalling due to delays in forming associations, higher member contributions, and tighter relocation loan regulations.
Under the Oct. 15 measures, all of Seoul, along with 12 areas including Gwacheon and Gwangmyeong in Gyeonggi, were designated as areas subject to adjustment, overheated speculation districts, and land transaction permit zones, imposing a two-year owner-occupancy requirement upon sale. For reconstruction, the transfer of association member status is restricted after association formation; for redevelopment, after management disposition approval.
According to the Seoul city government, about 210 business sites with roughly 160,000 households are subject to restrictions on transferring association member status. There are also a total of 65 reconstruction and redevelopment business sites with about 81,000 households at the stages before association formation, such as district designation and association formation promotion committees.
Junggye Jugong Complex 4 in Nowon-gu, Seoul, had been preparing to form a reconstruction preparatory committee early next year, but after the regulatory announcement, internal views have emerged that the project should slow down. At Sanggye Jugong Complex 5 in the same district, concerns are spreading among association members that securing funds will be difficult as the burden of member contributions has increased ahead of the relocation process.
A person in the maintenance industry said, "These days, it is not easy to cover Seoul apartment jeonse costs with 600 million won," adding, "If relocation loans are capped at a 600 million won limit, it will be difficult to further pursue maintenance projects even in Seoul unless they are in Han River belt locations such as Apgujeong-dong in Gangnam, Hannam-dong in Yongsan, or Seongsu-dong in Seongdong."
A person in the construction industry said, "In the Gangnam Han River belt maintenance sites, builders with credit ratings of AA- or higher, such as Samsung C&T, Hyundai E&C, and DL E&C, can obtain additional relocation loans at relatively lower interest rates through credit support, so relocations proceed more smoothly," but added, "In non-Gangnam areas, apartment sale prices are lower than in Gangnam, so if member contributions rise due to higher construction and financing costs and the relocation loan channel is also blocked, it will be practically difficult to carry out projects."
Real estate experts said policymakers should consider setting the relocation loan limit in proportion to the value of pre-reconstruction assets. They argue it is more reasonable to set it at a loan-to-value (LTV) ratio of around 40% to 50% than to uniformly cap relocation loans at 600 million won.
Shin Bo-yeon, a professor in the Real Estate AI Convergence Program at the Graduate School of Industry, Sejong University, said, "The government applies the same loan limit (600 million won) to all association members regardless of the value of pre-reconstruction assets, making it difficult to find rental dwellings of similar size with only the base relocation loan," adding, "As reliance on additional relocation loans from large builders with strong credit becomes entrenched, polarization between large and small and midsize construction companies is deepening."
There is also an opinion that relocation loans, currently classified as household loans, should be categorized separately as facility funds for maintenance projects, distinct from general mortgage loan products.
Shin added, "Even when additional relocation loans are available, interest rates are about 2 percentage points per year higher than general mortgage loan rates, increasing the real burden on association members," and said, "A support system for relocation loans should be established through public finance such as the housing & urban fund, so that association members can raise relocation funds on fair terms regardless of the builder's creditworthiness."