Land Reserve Program Previously Used for Roads and Industrial Complexes Now Applied to Housing Supply...Key Issues: Location and Purchase Price

Government and LH to Utilize 500 Billion Won
Land Reserve in Greater Seoul for Housing Supply
Pilot Project for Supply-Demand Adjustment
to Complete Purchases by Next Year

The government's decision to pre-purchase small idle land parcels around the Seoul metropolitan area is aimed at accelerating the housing supply process by expediting lengthy compensation procedures. In development projects, including housing construction, the land acquisition stage—which involves compensation—is often prolonged due to the complex coordination of vested interests. Until now, public land banking initiatives were focused on public development, but the government plans to gauge the effectiveness of this approach through a pilot project.

However, securing funding for land banking, negotiating purchase prices with landowners, and site selection are expected to be key challenges when the land is actually supplied for housing projects in the future.

Scenery of the Korea University Deokso Farm area in Wabu-eup, Namyangju, Gyeonggi Province. It is one of the new housing site candidates designated by the government. Photo by Yonhap News Agency

According to a comprehensive briefing by the Ministry of Land, Infrastructure and Transport (MOLIT) on September 8, the public land banking initiative for managing housing supply and demand in the Seoul metropolitan area aims to close purchase contracts within five months of receiving applications. The plan is to consult in advance with those interested in selling, review applications and eligibility within this year, conduct surveys and appraisals, negotiate prices, and complete the acquisition procedures by February next year.

Banking land at the public level does not immediately enable housing construction. However, securing sites in advance allows for timely development. Normally, when creating large-scale public housing sites, it takes three years and eight months just to complete a series of "preliminary procedures" such as the initial compensation survey, appraisal, negotiated compensation, and expropriation award. This lengthy timeline is due to the difficulty of coordinating with landowners and other stakeholders.

An official from the Ministry of Land, Infrastructure and Transport commented, "The timing of actual housing supply will depend on exactly how much and where land is banked, but securing sites in advance will help expedite the compensation and acquisition process."

The public land banking project, introduced in 2009 by Korea Land & Housing Corporation (LH), has so far been focused on public development. The system aims to allow LH’s land bank to pre-acquire land needed for public-interest projects and supply it at low costs to developers. Typically, development of roads, parks, and industrial complexes needed by local governments has been the focus. From 2009 through the end of last year, a total of 86 projects with a combined value of KRW 5.2833 trillion were approved, of which projects worth KRW 3.9577 trillion, or about 75%, were implemented. The scale supplied to developers reached KRW 3.6875 trillion.

There are also criticisms of practical limitations within the land banking process. Since public land banking is funded not with government finances but with bonds issued by LH, its high debt ratio could hinder progress. LH has set the maximum funding for this round of land banking at KRW 500 billion, and this will also be raised through bond issuance. The financial investment sector is already voicing concerns that large-scale bond issuances by LH could absorb significant liquidity from the market.

If a site is well-located, the price is bound to be high, and if prices are high, it becomes difficult to acquire, creating an inherent dilemma. The system is therefore prone to mismatches. By regulation, land purchase prices in land banking must be set within the arithmetic average of two independent appraisals by appraisal offices. If LH considers a site appropriate for housing supply, landowners would likely come to the same conclusion, making it difficult to narrow the gap in price expectations. Under current rules, LH cannot pay a premium above the appraised value after evaluation during land banking.

An official from MOLIT said, "Although the parcels to be banked this time are not large on an individual basis, we will strive to maximize the perceived impact on housing supply after acquisition."

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