'Emergency Over Relocation and Construction Costs'... Seoul Launches First Comprehensive Survey on Small-Scale Redevelopment Loans

Relocation Stalled for Small-Scale Projects Due to Loan Regulations

Seoul to Survey HUG Loan and Funding Status

The Seoul Metropolitan Government will conduct a comprehensive survey on the status of loans and relocation expense funding provided by Korea Housing & Urban Guarantee Corporation (HUG) to small-scale housing redevelopment projects with fewer than 200 units within the city. This direct investigation by Seoul is in response to a recent surge in project delays, as construction costs rapidly increase and loan regulations tighten. This is the first time Seoul has conducted a comprehensive survey on HUG loans and funding status for all types of small-scale redevelopment projects, including street housing redevelopment and self-directed redevelopment.

A villa complex in downtown Seoul. Photo by Yonhap News Agency

According to the redevelopment industry and the Seoul Metropolitan Government on August 1, Seoul recently requested all 25 district offices to participate in a “Comprehensive Survey on the Promotion Status and Funding of Small-Scale Housing Redevelopment Projects.”

Small-scale reconstruction projects target multi-family housing complexes with fewer than 200 units. Unlike large-scale redevelopment or reconstruction projects, small-scale endeavors have found it much harder to obtain guarantees from major construction companies or to secure private project financing (PF) loans, due to their limited scale and relatively lower profitability. As a result, most of these projects have relied on HUG’s small-scale redevelopment loan guarantees and policy loans to cover initial project expenses and residents’ relocation expenses.

The Seoul Metropolitan Government decided to conduct this comprehensive survey because the recent sharp rise in raw material and labor costs has made it increasingly difficult to proceed using only the previously available policy loans. As project costs have soared far above initial plans, a growing number of sites are unable to cover additional relocation and construction expenses within the existing HUG loan limits. An official from the city explained, “We have decided to carry out this survey to closely assess the current situation of many small-scale redevelopment associations.”

HUG’s loans for small-scale housing redevelopment utilize the Urban Housing Fund (city account) and are provided at an annual interest rate of 2.2%, covering up to 70% of the total project cost. In the case of street-type redevelopment projects, HUG sets a combined limit of 50 billion won for both direct and delegated (interest-subsidized) loans. For this year, HUG secured a budget of 424.5 billion won for street housing redevelopment, supporting both the initial and main phases of project expenses.

The Seoul Metropolitan Government is also offering support measures for small-scale redevelopment projects. To reduce the financial burden on redevelopment and reconstruction committees and associations, the city is providing 18 billion won in project loans, with an annual interest rate of 2.5% for collateralized loans and 4% for credit loans. For example, on July 28, the Machon 1 Redevelopment Promotion Zone Association in Songpa District received approximately 520 million won in project loans from Seoul to fund initial project expenses.

However, according to the city, as of January, about 91%—that is, 39 out of 43 redevelopment zones at the relocation stage—were facing disruptions in securing relocation funds due to loan regulation policies. The situation was most severe for “Moahousing” projects, a category of small-scale redevelopment involving mid-sized construction companies.

A representative of the redevelopment industry stated, “Relocation can only proceed once funds are secured, but as loan limits have dropped to 40%, the challenges have mounted. While Seoul offers relocation loan support, there are real limitations because first-priority security (senior collateral) is required, making it difficult for those with existing loans to receive the support.”

This survey is primarily focused on reviewing HUG loan applications, approvals, and the remaining funding status at sites that have reached the final relocation stage of their redevelopment projects. Based on the findings, the city plans to pinpoint the specific challenges faced by projects experiencing financial difficulties, and then to formulate effective measures—including negotiating increased loan limits with the Ministry of Land, Infrastructure and Transport and HUG, or introducing further city-level support.

A HUG official commented, “As the number of projects increases, we are working with the Ministry of Land and fiscal authorities to secure additional resources within the fund so that we can smoothly support new demand for relocations scheduled within the year.”

This content was produced with the assistance of AI translation services.