▲ Apartments in Gangnam and Songpa districts
The imposition of the excessive reconstruction profit recovery charge, which is expected to send shockwaves through the reconstruction market, is projected to begin in earnest within the year.
Seocho District has announced that it will impose the charges within the year on Banpo Hyundai, the first complex in the Gangnam area subject to the excessive profit recovery scheme.
Reconstruction associations are pushing back, threatening legal action upon the imposition of the charges, while "dual pricing" has emerged in moved-in complexes due to uncertainties surrounding the recovery charges, deepening market confusion.
According to the brokerage industry, Banpo Raemian Trinione in Seocho District (formerly Banpo District 3), which began move-ins last August, is seeing price gaps of more than 1.8 billion won for the same housing type.
Beyond typical differences in floor levels, views, or the presence of urgent sales, prices have diverged depending on who will shoulder the excessive reconstruction profit recovery charge.
For the exclusive 84-square-meter units in this apartment complex, one unit on the 35th floor is listed at 5.7 billion won, while a 32nd-floor unit is listed at 5.15 billion won.
The difference between the two listings comes down to whether the recovery charge is included: the 5.7 billion won unit is priced with the seller covering it, while the 5.15 billion won unit operates under a separate charge condition where the buyer bears the cost.
In effect, a "dual pricing" system has formed based on who pays the reconstruction charge.
A realtor in Banpo-dong explained, "Although Trinione has been completed, it has not yet undergone the transfer of ownership title, allowing cooperative member status to be traded. In principle, buyers are supposed to pay the reconstruction charge. However, as transactions stalled due to risks regarding when and how much the charge will be, sellers have offered to cover it, widening the price gap solely based on the recovery charge to roughly 600 million to over 700 million won."
The reconstruction charge is levied when excess profits—calculated by evaluating the prices of previous assets (at the time of association establishment authorization) and post-completion assets (at the time of move-in), minus normal housing price increases and costs such as construction expenses—exceed a certain threshold.
Back in 2020 during the management disposal plan, Seocho District notified that Trinione's expected excessive reconstruction profit recovery charge would average 402 million won per household. However, with subsequent increases in general presale prices and soaring neighboring apartment values, observations suggest the charge could reach up to 700 million won per household.
Currently, the market prices for the complex's exclusive 84-square-meter units range widely from 45 billion won to a peak of 6.3 billion won, depending on urgent sale status and the handling of the reconstruction charge.
Nevertheless, local brokerages report that even urgent sales are struggling to find buyers due to uncertainties over when and how hefty the charges will be.
Another realtor in Banpo-dong noted, "Although the reconstruction recovery law remained in place, collections had been deferred or suspended for years, so very few cooperative members actually thought they would have to pay. If actual charges are levied, market confusion will be immense."
According to the maintenance project industry, over 60 complexes nationwide are estimated to be subject to the recovery charges.
Among them, Seoul alone accounts for 46 complexes and 18,000 households.
The recovery charges follow a revised law implemented on March 27, 2024, which delayed the assessment point to the association establishment authorization and required local government heads to calculate and notify associations within five months of completion. However, no complex has been billed yet.
This delay occurred because Rep. Kim Eun-hye of the People Power Party proposed a bill to abolish the system in June 2024, and the Ministry of Land, Infrastructure and Transport under the Yoon Suk Yeol administration officially pursued the abolition of the reconstruction charge.
However, with the launch of the new government, discussions on abolishing the system have faded into the background, paving the way for actual impositions.
As Seocho District maintains its stance to levy the reconstruction charge within the year on Banpo Hyundai (now Banpo Centreville Asterium), considered the "Gangnam area's first" complex, impositions are expected to become a reality in other local governments as well.
Banpo Hyundai (now Banpo Centreville Asterium) began move-ins on July 30, 2021, making it over five years since its completion.
Seocho District cites the reason for rushing the year-end imposition as Article 18 of the Reconstruction Recovery Act, which stipulates that provisions regarding the payment and collection of reconstruction charges shall apply mutatis mutandis the Restitution of Development Gains Act.
The Restitution of Development Gains Act sets the statute of limitations for the right to collect development charges and to refund overpayments at five years from the time the right becomes exercisable, after which the right is extinguished.
Therefore, considering the completion date and the five-month assessment period, the district aims to execute the imposition within this year.
In addition to Banpo Hyundai, Seocho District is currently processing the calculation of reconstruction charges for other complexes including Banpo District 3 (Raemian Trinione), Shinbanpo 21 (Ahterior Banpo), Shinbanpo 18 Building 337 (Ahterior Shinbanpo), and the Shinsung Villa reconstruction project.
Meanwhile, the Ministry of Land, Infrastructure and Transport interprets that since the law was amended in March 2024, the charges can be levied within five years of the amended law's implementation, effectively extending the deadline to 2029.
An official from the Ministry of Land, Infrastructure and Transport stated, "Under Article 3 of the Addenda of the Reconstruction Recovery Act established on December 26, 2023—which provides a special exception regarding the determination and imposition deadlines for reconstruction projects whose completion point predates the enforcement of the law—charges can be determined and imposed within five months from the law's enforcement date. Consequently, it is appropriate to view the statute of limitations as five years following the revised law's implementation."
Reconstruction complexes nationwide are protesting, raising issues with the calculation methods and vowing to immediately file injunctions and administrative lawsuits if actual charges are levied.
They argue that business implementation will become unviable as expectations of tens of millions to hundreds of millions of won in charges loom not only in Seoul but also in regional areas.
The primary flaws in the reconstruction recovery law cited by associations are that it constitutes a punitive tax levied on unrealized gains, while functioning as a "draw-of-the-luck" charge where development gains vary by complex depending on market prices at the time of move-in.
Complexes where reconstruction proceeded during the Moon Jae-in administration, such as Banpo Hyundai, object to the application of the Korea Real Estate Board's housing price trend index—which has been embroiled in controversy over statistical manipulation—to calculate the "normal housing price increase rate" deducted from excess profits.
This is because the Real Estate Board's housing price statistics during the Moon Jae-in administration were lower than increase rates reported by other market research institutions like actual transaction price indexes or KB Real Estate, resulting in excessive estimations of surplus profits.
The Beomeo Ubang 1-cha Reconstruction Association in Suseong-gu, Daegu, also argues that it is problematic to apply the higher figure when comparing the normal housing price increase rate against either the "average housing price increase rate of the entire city, county, and district" or the "fixed deposit interest rate."
During the reconstruction project period, apartment prices in three nearby complexes around Beomeo-dong rose by an average of 44.59%, whereas the overall increase rate for Suseong-gu stood at a mere 9.94%, falling short of even the fixed deposit interest rate (18.07%) during the same period, making the application unfair.
Equity issues have also been raised over the fact that redevelopment projects expected to generate massive development gains—such as Seongsu, Hannam, and Noryangjin—are exempt from separate charges, whereas charges are imposed solely on reconstruction projects that entail substantial public contributions, such as land donations, comparable to redevelopment.
The imposition method is another problem.
Critics point out that because individual cooperative members acquire their properties at different times and thus experience varying final market capital gains (development gains), the final remaining members are saddled with the entire burden, creating massive equity issues between cooperative members and general buyers.
Yongmun District 1, 2, and 3 in Seo-gu, Daejeon (now Dunsan The Sharp Elif), which began move-ins in February of last year, carried out its project via detached-house reconstruction rather than redevelopment, and expects reconstruction recovery charges of 100 million to 200 million won per household.
A cooperative official stated, "Among current members, some purchased 100-to-200-million-won detached houses by paying a 300-to-500-million-won premium, and then paid over 100 million won more in construction cost-sharing shares. If reconstruction charges are slapped on top of this, the costs will exceed not only current market prices but even general presale prices of 550 million to 630 million won. Is it logical for cooperative members to give up their land, build homes, and shoulder costs higher than market prices while general buyers acquire units cheaper than members?"
Experts forecast that if the imposition of reconstruction recovery charges gets underway in earnest, the ripple effects across the entire reconstruction market will be substantial.
Park Hap-soo, an adjunct professor at Konkuk University Real Estate Graduate School, noted, "If reconstruction charges are suddenly realized amidst severe difficulties—such as surging construction costs leading to heavier additional cost-sharing—market confusion, subsequent project delays, and a contraction in downtown housing supply in Seoul and new towns will be inevitable. In some cases, side effects could emerge where reconstruction charges are reflected in members' stake prices, driving costs up."
Park Won-gab, senior real estate expert at KB Kookmin Bank, remarked, "The currently revised mitigation scheme for reconstruction charges grants exemptions based on whether someone is a long-term single-home owner. Since this is a provision that didn't exist in the past, individuals who were already two-home owners prior to the passage of the amendment have no way to receive exemptions, and members with short holding periods receive minimal benefits. This can act as a stumbling block to project progression, causing members to oppose reconstruction altogether. The system should either be abolished or, if that is difficult, tweaked to allow for a realistic imposition."
(Photo: Yonhap News)
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