Nine Associations Nationwide Face 1.1 Trillion Won in Reconstruction Excess-Profit Levies Alone... Redevelopment Industry on Alert

Nine associations nationwide face 1.1461 trillion won in levies

Home sale and actual transaction price indexes show a fourfold gap in growth rates

"Home sale price index fails to reflect actual home price increases"

Associations: "Revise calculation method"... Ministry: "Law must be amended"

The total estimated reconstruction excess-profits levies calculated by associations in nine reconstruction complexes nationwide has topped 1 trillion won. This means each household could have to pay at least 21 million won and as much as 400 million won. The redevelopment industry says the criteria should be changed because the home sale price index currently used to calculate the levies does not adequately reflect market prices. If the system is not improved, concerns are growing that housing supply through redevelopment projects could be stalled, starting with Banpo Centreville Asterium in Seocho-gu, formerly Banpo Hyundai.

According to the Nationwide Reconstruction and Redevelopment Association Coalition (Jeonjaeyeon) on October 28, 10 complexes among its 82 member associations were found to be subject to the reconstruction excess-profits levy. Excluding Busan’s Daeyeon District 4, where the levy has not yet been estimated, the projected levies for the 7,332 association members in the remaining nine complexes are estimated to total 1.1461 trillion won.

The reconstruction excess-profits levy is a system that recoups a portion of the excess profits when the average profit earned by association members through reconstruction exceeds 80 million won. It applies to reconstruction associations and others that have applied for approval of a management and disposal plan since the system was reinstated in 2018.

By association, the highest estimated levy was 402 million won per member at the Banpo District 3 reconstruction project in Seocho-gu (Raemian Trini One). The estimates were 284.89 million won for Sinbanpo 21st (OTIERE Banpo) and 100 million won for Banpo Hyundai. Outside the Seoul metropolitan area, members are expected to pay up to 276 million won at Dunsan The Sharp Ellif in Daejeon (Yongmun-dong Districts 1, 2 and 3) and 49.14 million won at Beomeo I-Park in Daegu (Beomeo Woobang 1st).

The main point of contention is whether market prices are properly reflected in the levy calculations. The redevelopment industry and Jeonjaeyeon say that the current calculation method does not adequately reflect market prices, resulting in excessive levies. The levy is calculated based on excess profits, determined by subtracting the value of homes at the time the association was established, the increase in normal home prices and development costs from the value of homes on the date of completion approval, when the project ends. The increase in normal home prices is the amount that homes are deemed to have appreciated in line with market trends even if no reconstruction had taken place. The higher this increase is assessed, the lower the levy association members must pay; it is calculated using the Korea Real Estate Board’s home sale price index.

Associations argue that the home sale price index, a statistic estimating average home prices by city, county and district, reflects only about 30% of actual market prices. Because the index’s sample may include homes that rarely trade, the gap between it and the actual transaction price index, which is calculated based only on prices from homes in the same apartment complex that have recorded at least two transactions, widens substantially when home prices rise or fall.

A comparison of the increase in Seoul’s home sale price index with the actual transaction price index from January 2017 to December 2021, when home prices surged, shows a gap of nearly four times. Over the same period, the home sale price index rose 27.2%, while the actual transaction price index for apartment housing climbed 100.9%. Looking at individual complexes, Seocho-gu’s home sale price index rose 22.45% from October 2016, when Banpo Hyundai received approval to establish its association, to July 2021, when it received completion approval. But according to the actual transaction price index for apartment housing, the index rose from 88.7 to 170.9 over the same period, an increase of 92.6% - a growth rate 4.1 times higher.

The redevelopment industry is calling for the system to be revised so that the actual transaction price index is used to calculate increases in normal home prices, or so that actual transaction prices at five comparable complexes nearby are taken into account. It has submitted proposals to the Ministry of Land, Infrastructure and Transport to improve the levy calculation method in December 2025 and June 2026. Park Kyung-ryong, head of the Bangbae Samik Apartment Association and secretary of Jeonjaeyeon, said, "For some complexes, applying the actual transaction price index puts the levy at around 91 million won per member, but applying the home sale price index raises it to 340 million won. Because home price increases are calculated at less than actual market levels, levies end up being overstated."

The Ministry of Land, Infrastructure and Transport, however, says it is difficult to apply the actual transaction price index under current law. The Reconstruction Excess Profits Recovery Act stipulates that the increase in normal home prices must reflect the average home price increase rate for each city, county and district, but the relevant statistics are unavailable for areas outside the Seoul metropolitan area, the ministry said. A ministry official explained, "The actual transaction price index is calculated only at the provincial level in areas other than the Seoul metropolitan area and the five major metropolitan cities. Since current law requires the average home price increase rate for each city, county and district to be applied, it is difficult to use the actual transaction price index unless the National Assembly amends the law."

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