The Blue House called for a comprehensive plan for Knowledge Industry Complexes suffering from widespread vacancies, saying they "need fundamental surgery." But the government's project to convert Knowledge Industry Complexes into public rental housing, one of its proposed solutions, saw the deadline for its first purchase-agreement call for proposals extended by three weeks. That is because turning factories or office facilities into housing requires high construction costs and securing profitability is not easy.
According to the government on the 9th, Presidential Chief of Staff Kang Hoon-sik on Sept. 7 ordered relevant ministries, including the Ministry of Trade, Industry and Resources and the Ministry of SMEs and Startups, to prepare a comprehensive plan that includes changing the permitted uses of Knowledge Industry Complexes, overhauling eligible industries and tenant qualifications, and refining management and oversight systems. Kang, the Deputy Minister, said, "Supply surged as the excessive pursuit of revenue by builders and developers around 2020 overlapped with some local governments' indiscriminate approvals," adding, "We need fundamental surgery, not stopgap measures."
The Blue House said the average unsold rate for Knowledge Industry Complexes completed over the past three years stands at 27%, with a vacancy rate of 44%. In some areas with poor location conditions, the vacancy rate exceeds 70%.
While the government is seeking ways to utilize them, the hurdle to converting Knowledge Industry Complexes to housing is high. Korea Land & Housing Corporation (LH) extended the deadline for applications for the "nonresidential use-change remodeling purchase-agreement project," which converts nonresidential properties such as vacant retail units, offices, and Knowledge Industry Complexes into public rental housing for young people and newlyweds, from the 9th of this month to the 30th.
LH said it extended the deadline because building owners and developers requested more time to prepare designs and remodeling estimates. An LH official said, "Since the call is underway, it is difficult to disclose the number of applications and the types of properties submitted."
Under the purchase-agreement method, a building owner or remodeling developer signs a prior agreement with LH and converts a nonresidential property into, for example, an officetel or dormitory, after which LH purchases the completed building. Unlike the method in which LH first buys the building and carries out the work directly, the private sector handles design, permitting, and remodeling.
Eligible areas include all of Seoul and parts of Guri, Gwacheon, Gwangmyeong, Seongnam, Suwon, Anyang, Yongin, Uiwang, Hanam, and Dongtan in Hwaseong, Gyeonggi Province. Buildings must have been completed within 30 years, have seismic design applied, and be eligible for a change of use to housing. Factories within Knowledge Industry Complexes were included for the first time, but final review and selection will proceed depending on the progress of related legal amendments.
Knowledge Industry Complexes are considered harder to convert to housing than retail or office space. To divide large factory or office spaces into multiple homes, walls must be installed and kitchens and bathrooms must be built for each unit. Electrical, water, heating, plumbing, ventilation, fire safety, and soundproofing facilities also need to be upgraded to meet residential standards.
For buildings where multiple people own divided units, owners may have to consent during changes to common areas and building-level use conversions. Rising construction costs could also push total project costs above LH's appraised purchase price.
Non-capital regions, where vacancies are more severe, were excluded from this project. Some pointed out that many areas would struggle to secure rental demand even after conversion to dwellings, calling for solutions different from those in the capital region.
In April, the government increased the number of knowledge and information-communication industries eligible to move into Knowledge Industry Complexes from 78 to 95. An industry official said, "Even if eligible industries are expanded, contracts can fall through if the managing entity takes a conservative view," adding, "Management standards must be clarified so that deregulation actually leads to move-ins."