I worked all my life to buy a single home and planned to redevelop it and spend my later years there, but suddenly I'm about to become a jeonse scammer who can't even return the tenant's deposit. The government is calling for revitalizing redevelopment projects, but in reality it is holding us back from relocating.
On the 9th in the afternoon, at a redevelopment site in Dongdaemun District, Seoul, a union member identified as A said, I applied for a 1+1 allocation that would allow me to receive new apartments of 84 square meters exclusive and 59 square meters exclusive in the Dongdaemun redevelopment zone in Seoul, but after the government policy was released in Oct. last year, I became an owner of three homes and can no longer get a relocation loan anywhere.
A said, It takes 700 million won in relocation funds to move the tenant out, so where am I supposed to find that money all of a sudden, and added, Even if I try to sell, in the case of the Dongdaemun redevelopment zone in Seoul, a buyer can succeed to union membership only if the home meets the requirements of one household, one home, held for 10 years and occupied for 5 years, so even if I list it, it won't sell. From the tenant's standpoint, they can't leave without getting their deposit back, so suddenly the homeowner is being branded a jeonse scammer and faces a lawsuit.
Redevelopment and reconstruction sites across Seoul are reeling from the relocation loan restrictions. As the government's tough real estate lending curbs are applied as-is to the relocation phase, which is essential to redevelopment, union members whose financing plans have been upended are scrambling.
Those hit hardest are union members who applied for 1+1 allocations and owners of multi-family homes. Even if you own a single home in a redevelopment zone, if the appraised value of your previous assets—meaning the valuation of the existing land and building—is high, you can receive two homes (such as 84 square meters + 59 square meters). In that case, under current law you are classified as a multi-home owner.
However, with the 10-15 measures the government released last year completely cutting off relocation loans for multi-home owners, some union members have been driven into a cash crunch.
In fact, according to the Seoul city government, about 91% of Seoul redevelopment business sites are at risk of delays due to the government's strong lending restrictions. Demolition and groundbreaking can proceed only after relocation starts, but delays are occurring at that first step.
Industry officials said that if relocation is delayed due to the government's heavy-handed regulations, the damage inevitably falls squarely on all union members. The longer the relocation period, the more construction costs and interest on project loans swell, ultimately leading to higher union member contributions and weaker project viability.
A union member identified as B, met the same day at the Dongdaemun redevelopment site, said, I planned to return the deposits according to my financing plan, but the loan limit was suddenly capped at 600 million won, making it hard to return jeonse deposits to tenants, and added, I received an asset valuation of about 1.2 billion won, and until the measures released on Jun. 27 last year, relocation loans allowed a loan-to-value (LTV) ratio of up to 60%, so I could get around 700 million won, but after the measures, the cap was cut to a maximum of 600 million won, forcing me to urgently find more than 100 million won.
As a result, redevelopment sites are relying on additional loans backed by construction company guarantees to fill the shortfall in relocation funds. In projects with large construction companies, raising extra funds is relatively easier thanks to the contractor's strong credit. But at sites mainly involving mid-sized builders, concerns about credit downgrades make it hard to provide guarantees for additional relocation loans.
Shin Bo-yeon, a professor in the Department of Real Estate-AI Convergence at Sejong University, said, For mid-sized firms, guarantees are difficult due to credit risk or the interest burden is high, and pointed out, As more sites stall because relocation financing isn't resolved, it is ultimately leading to a contraction in supply.
An industry official said, For contractors ranked roughly 10th to 20th in construction capability evaluations, additional relocation loans are mostly impossible, and added, Even if the contractor is a large builder and additional relocation loans are possible, the interest runs at over 8% a year, which is a heavy burden for union members.
Real estate experts said uniform lending curbs that do not account for the unique nature of redevelopment are holding back housing supply. Since relocation loans are extended only after signing a pledge not to purchase additional homes, there are calls to treat them not as household loans but as essential project costs to push redevelopment forward and to ease the restrictions.
Shin said, As the government has emphasized it will revitalize redevelopment, it should swiftly prepare exceptions to resolve the funding squeeze that arises at the relocation stage.