In Pungmu-dong, Gimpo, Gyeonggi Province, land tied to a residents' housing association project was put up for auction in its entirety. The association, which had promoted plans to build a large apartment complex with more than 1,800 units through a residents' housing association, collected money from members but failed to fully secure the project site, and even the portion it did secure was compensation land that had not been processed for land readjustment (land sold by an urban development project operator to cover expenses).
The association collected 60 million to 70 million won per person from nearly 1,300 members, but when a 91 billion won bridge loan from financial institutions fell into an event of default (EOD), the land went to auction in its entirety. The money the association collected from members is close to 100 billion won. None of that money remains now, and it is unclear how it was used.
◇ Association bought land not processed for land readjustment
According to legal sources on the 16th, on July 15 last year, the Bucheon branch of the Incheon District Court decided to commence auction proceedings for 85,243 square meters (about 25,746 pyeong) of land at 570-7 Pungmu-dong, Gimpo. This land had been provided as collateral by the Gimpo Pungmu Phase 1 Residents' Housing Association in the process of obtaining a 91 billion won bridge loan for land acquisition from a syndicate including the Korean Federation of Community Credit Cooperatives (KFCC). A syndicate official said, "Due to an event of default (EOD), a senior creditor applied for auction, and after the court's commencement decision, the auction date has not yet been set."
This project site had recruited members on plans to build 1,822 units of multifamily housing up to 36 stories above ground with one basement level on about 119,369 square meters (about 36,109 pyeong) at 570-7 Pungmu-dong, Gimpo, along with ancillary welfare facilities. YS Development signed a project agency contract. Gimpo is promoting the Gimpo Yuhyeon District Urban Development Project to redevelop blighted areas in Pungmu-dong, and this is land within the Yuhyeon District.
Gimpo is developing the Yuhyeon District through land readjustment, with the Gimpo Pungmu Yuhyeon District Urban Development Project Association as the implementing entity. Under land readjustment, instead of expropriating landowners' rights and compensating them when carrying out an urban development project, they are given new plots created after development in exchange. The association purchased some land that had not yet been processed for land readjustment and used this land as collateral to obtain a loan, but it fell into an event of default.
The association collected around 60 million to 70 million won per person. As of July 13 last year, the date the auction commencement order was issued, there were 1,292 members, and the amount paid by members totaled about 99 billion won. Even with members' contributions alone, the 91 billion won bridge loan borrowed from the syndicate could have been repaid, but the association is now insolvent. It is unknown where the money collected from members went or why the loan fell into an event of default. Some members filed lawsuits to withdraw and left the association. The previous leadership has been replaced with a new leadership.
Attorney Bae Seong-gwon of Songji Law Office said, "Since the association has no money left and there are senior creditors exceeding 90 billion won, even if the auction is successful, it will be difficult for members to get their money back." A Gimpo official said, "We have not yet determined the exact amount of damage suffered by members." Regarding this, an association official said, "Centering on the leadership, we are seeking measures to resolve the issue."
◇ Illegal acts and association corruption continue, President Lee ordered a full review last year
A residents' housing association is a resident-led housing development project in which people such as those without homes who have lived in a specific area for more than six months form an association, directly purchase land, select a construction company, and build apartments. It is a system introduced in the late 1970s to help people without homes secure housing. In redevelopment and reconstruction, associations for maintenance projects are formed by homeowners or landowners to promote the project. However, in residents' housing associations, people without homes or those owning small homes form an association to promote the project and secure land during the process. The project begins by recruiting members before securing land ownership. Because of this difference, residents' housing associations have often seen problems such as corruption and embezzlement.
President Lee Jae-myung also said at the first Cabinet meeting after taking office on June 5 last year, "There was a major incident involving a residents' housing association, and I understand the problem is serious," and asked, "Please provide a separate report on a nationwide fact-finding survey and issues related to reconstruction and redevelopment laws." The Ministry of Land, Infrastructure and Transport surveyed 618 residents' housing association sites nationwide from June to July last year and confirmed 293 disputes at 187 associations. The Seoul city government also conducted a full review of 118 residents' housing associations from May to Oct. last year, uncovered violations of the Housing Act and association corruption at all 118 sites, and referred 14 cases for investigation.
Seo Gyeong-gyu, a professor of real estate at Daegu Catholic University, said, "Residents' housing associations recruit members and use their money to purchase land without having secured 100% of the project site, and the biggest risk is failing to secure the site." He added, "Problems can also arise such as a construction company demanding additional contributions from members due to rising construction costs, and if the association uses members' money as project expenses during the process, there is no way to recover it." Seo Jin-hyeong, a professor in the real estate law and administration department at Kwangwoon University, also said, "Unless an association's integrity is ensured, a residents' housing association project cannot proceed."