Even if a union member's sales price for a new apartment after reconstruction is 2 billion won, the basic relocation loan tops out at 600 million won. The government since on the 31st of last month has allowed the value of the new apartment to be recognized as loan collateral, but kept the 600 million won cap. For union members whose existing dwellings' asset appraisal value already exceeds 1.5 billion won, the loan limit is the same as before the easing. In high-priced redevelopment sites such as in the Gangnam area, some say it is hard to feel any effect.
By contrast, union members whose existing dwellings' asset appraisal value is below 1.5 billion won may see their loan limit increase. In response, Seoul redevelopment unions have begun talks with banks to reassess collateral value and change loan terms. The effect of the deregulation varies depending on the asset value of the existing dwellings.
According to the redevelopment industry on the 3rd, the Sanho Apartment reconstruction union in Yongsan District, Seoul, notified members that it had received a reply from Shinhan Bank, its relocation loan partner bank, that the changed loan-to-value (LTV) calculation method can be applied. The union said, "Compared with calculating solely on the basis of the pre-redevelopment asset appraisal value, the available relocation loan amount may increase."
The pre-redevelopment asset appraisal value is the value of the land and buildings owned by union members before the project. Previously, only this amount was recognized as collateral to calculate the relocation loan limit. Since the 31st of last month, the larger of the pre-redevelopment asset appraisal value and the post-redevelopment asset appraisal value of the new dwellings is used for applying the LTV.
For example, a union member with a pre-redevelopment asset appraisal value of 1 billion won could get up to 400 million won by applying a 40% LTV. If the post-redevelopment asset appraisal value of the new apartment is 1.3 billion won, the available loan amount increases by 120 million won to 520 million won.
Other unions preparing to relocate are also discussing changes to loan terms with financial institutions. The Bukahyeon District 2 redevelopment union in Seodaemun District, Seoul, which plans to begin relocation at the end of Oct., is consulting with financial institutions on reflecting the new collateral value assessment standard.
An industry official said, "It will help union members who could not adequately secure relocation funds because their pre-redevelopment asset appraisal value was low," adding, "For some redevelopment sites where projects were delayed due to relocation funding issues, relocation and ground-breaking could speed up."
The problem is that the basic relocation loan limit is capped at 600 million won. Because a 40% LTV applies in Seoul's regulated areas, when collateral value is 1.5 billion won the loan amount reaches 600 million won. Even if the collateral value exceeds that, the basic relocation loan does not increase further.
If the post-redevelopment asset appraisal value is 2 billion won, the amount by applying a 40% LTV is 800 million won, but the actual loan is limited to 600 million won. If the pre-redevelopment asset appraisal value was 1 billion won, it rises from 400 million won to 600 million won, but the 500 million won exceeding 1.5 billion won within the post-redevelopment asset appraisal value is not reflected in the loan amount.
Union members whose pre-redevelopment asset appraisal value is already at least 1.5 billion won are in a different situation. Because they had already hit the 600 million won cap under the previous method, the loan amount does not increase at all even if the post-redevelopment asset appraisal value is newly recognized. This is why the perceived impact of this deregulation is inevitably low at Gangnam-area redevelopment sites where the asset value of existing dwellings is high.
For Eunma Apartments in Daechi-dong, Gangnam District, Seoul, which is pushing for reconstruction, the estimated union-member sales price for the 59-square-meter exclusive area type is about 1.972 billion won. Applying a 40% LTV to that yields about 789 million won, but the basic relocation loan is only available up to 600 million won.
A reconstruction union member in Gangnam District said, "In the Gangnam area, even small dwelling types often have union-member sales prices over 1.5 billion won," adding, "It is hard to feel deregulation if you only change the collateral value assessment method while keeping the basic relocation loan limit as is."
Nam Hyeok-u of Woori Bank's Real Estate Research Institute said, "In northern Seoul or outlying redevelopment sites, where existing asset appraisal values are relatively low, an increase in the loan limit is expected," adding, "The impact on the Gangnam area, where existing asset values are high, will not be significant."
The government plans to introduce in Jan. next year a new guaranteed loan product for additional relocation funds for union members for whom the basic relocation loan is insufficient. In this structure, the builder or the union obtains a guarantee from the Korea Housing Finance Corporation (HF), raises a business loan from a bank, and then lends it to union members. Specific terms such as site-by-site guarantee limits, interest rates, and eligibility have not yet been disclosed.