"Redevelopment Sites with Low Profitability... Government Must Provide Public Support for Additional Relocation Loans"

National Assembly Forum on Redevelopment Revitalization
"Difficulty Securing Relocation Funds for Outskirts Projects in Seoul
Construction Firms Face Hurdles in Bidding Depending on Credit Rating
Government Urged to Step Up Public Support for Relocation Loans"

The construction industry has asserted that the government should provide additional relocation loan support for redevelopment sites with insufficient business profitability in order to expand housing supply through redevelopment projects. The claim points out that, as the basic relocation loan limit is capped at 600 million won, sites with insufficient profitability face difficulties raising additional relocation loans even with credit enhancement from the construction company, thus requiring public support from the government.

On August 10, a discussion forum titled "Measures to Revitalize Redevelopment Projects for Stabilizing Housing Prices in Seoul" was held at the National Assembly Members' Office Building, hosted by Lee Yong-sun, a member of the Democratic Party of Korea, and the Architectural Institute of Korea.

On the 10th, a forum on "Measures to Revitalize Redevelopment Projects for Stabilizing Housing Prices in Seoul" was held at the National Assembly Members’ Office Building, hosted by Congressman Lee Yong-sun of the Democratic Party of Korea and the Architectural Institute of Korea. Photo by Lee Jieun

At the forum, Park Youngkook, Head of Future Urban Value Business Team 3 at Hyundai Engineering & Construction, emphasized, "In the outskirts of Seoul, surging construction costs are increasing union members’ contributions and slowing project progress. For sites with low business profitability, there needs to be not only floor area ratio (FAR) support but also government support for additional relocation loans."

An Seungsang, Head of the Gangnam Office at DL E&C, also pointed out, "For housing units with a market value exceeding 2.5 billion won, the relocation loan limit decreases to up to 200 million won. In the Gangnam area, where many homes exceed 3 billion won in market value, the upper limit on relocation loans is so restrictive that there are even cases where the amount is insufficient to return the jeonse deposit." He added, "Construction companies cannot proceed with the project unless the occupants relocate, but difficulties are occurring at this very stage, causing problems at the field level."

As the importance of additional relocation loans secured through construction company credit enhancement increases, concerns have also been raised that lower-rated construction firms are having difficulty securing new redevelopment projects. Lee Jae-eun, Head of the Urban Redevelopment Sales Group at POSCO E&C, stressed, "Since additional relocation loans cause the interest burden on union members to vary widely depending on (the construction company's) credit rating, there is a tendency for project awards to be concentrated among major construction firms with higher ratings. I believe public support that enables various construction companies to participate will be more appropriate for expanding the housing supply in Seoul."

In reality, many redevelopment sites in Seoul are struggling with financing as the relocation loan limit is capped at 600 million won. As a result, cases are increasing in which construction companies provide credit enhancement to secure additional relocation loans, making the contractor’s credit rating a decisive factor in winning redevelopment projects. The base interest rate for additional relocation loans offered by construction companies is generally between 6 and 8 percent annually, and the total financial burden on union members differs depending on the contractor’s credit rating. Conversely, redevelopment sites in the outskirts of Seoul with lower profitability often face difficulties in additional negotiations with construction companies to procure extra relocation loans.

The government is also reportedly considering the introduction of a new guarantee product from the Korea Housing Finance Corporation (HF) regarding additional relocation loans, taking these issues into account. The plan is to introduce a new additional relocation loan guarantee product through HF at a lower interest rate.

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