The Ministry of Land, Infrastructure and Transport said on the 8th it will improve the system so that the public support private rental-linked redevelopment projects can proceed smoothly, by reasonably adjusting the criteria for calculating the sales price of rental housing and allowing some general sales.
This measure aims to support the resumption of normal progress by improving a situation in which projects have been delayed as the profitability of linked redevelopment projects has deteriorated due to rising construction costs.
The linked redevelopment project, introduced in 2015, is a system in which a rental housing operator (such as a REIT) purchases all general sale units and supplies them as private rental housing. It has eased the risk of unsold units and promoted the renewal of aging areas in city centers. However, as the sales price of rental housing was fixed at the time of approval for project implementation and construction costs rose, profitability deteriorated and members' contributions increased, leading to persistent complaints that projects were being delayed.
To address these issues, the Ministry of Land, Infrastructure and Transport first reasonably improved the conditions for allowing a market price reinvestigation. Currently, if the construction cost index rises by 20% or more from the month of public notice of approval for the project implementation plan to the month of requesting a market price reinvestigation, a reinvestigation can be conducted based on the time of the initial approval of the management disposition.
However, if a reinvestigation is requested three years after the public notice of approval for project implementation, it is limited to reflecting only the rate of increase in the construction cost index over the past three years. Accordingly, for business sites that seek a market price reinvestigation more than three years after the public notice of approval for project implementation, a reinvestigation was impossible if the growth rate of construction costs over the past three years was less than 20%, even though construction costs had risen for several years.
Under the revised rules, if the construction cost index for the entire period from the time of public notice of approval for project implementation to the time the reinvestigation is requested has risen by 20% or more, prices can be reinvestigated based on the initial approval of the management disposition plan. Through this, the Ministry of Land, Infrastructure and Transport expects that increases in construction costs will be realistically reflected, restoring the profitability of redevelopment projects and enabling smooth progress.
In addition, the structure of selling all general sale units to rental REITs will be improved to allow some general sales. Unlike typical redevelopment projects, where profitability can improve when general sale prices rise, linked redevelopment projects fundamentally could not secure such profitability because associations sell all general sale units to rental REITs at fixed amounts, making general sales impossible.
However, considering that the purpose of linked redevelopment projects is to boost housing supply, and that it is necessary to improve deteriorated profitability caused by rising construction costs so projects can proceed normally again, the Ministry of Land, Infrastructure and Transport decided to allow general sales for part of the units. That said, units corresponding to the floor area ratio relaxed due to the implementation of the public support private rental project must be supplied as rental housing, maintaining the intent and public nature of the system.
If this system improvement is implemented, the Ministry of Land, Infrastructure and Transport expects that business sites with deteriorated profitability due to rising construction costs will be able to use market price reinvestigations and conversions to general sales, improving profitability and accelerating the promotion of redevelopment projects.
Cho Min-woo, head of the Housing Maintenance Division at the Ministry of Land, Infrastructure and Transport, said, "With this system improvement, we expect the promotion of about 40,000 units of linked redevelopment projects nationwide to gain speed," and added, "We will steadily push forward with the comprehensive overhaul of redevelopment project systems included in the housing supply expansion plan (9/7 measures) so that high-quality dwellings in city centers can be supplied quickly."