Isn't Introduction of Development Cost
Sharing System Excessive Legislation?


Since the foreign exchange crisis in 1998, the government announced over 50 small or large real estate policies, real estate prices went up and down drawing W letter curve and failed to stabilize prices, a survey said.
Despite the August 31st measures, the prices of apartments in the Gangnam district in southern Seoul rose from 7 to 8 percent, while those of apartments in provincial cities including Busan, Incheon, and Daejeon fell, an indication that the impact from the March 30th measures have deepened the gap between the two extremes in the range of prices.
The core of the March 30th measures is charging development costs on the owners of the redevelopment apartments and making loan terms tough for buyers of luxury apartments in the zones designated as speculative areas.
On the announcement that the government will retrieve up to 50 percent of development profits, some complain that the move would be so excessive that it could be in violation of the Constitution Law in light of the fact the government has been collecting development profits already by way of requiring developers to build rental apartments from 10 to 25 percent of the increased land lot due to redevelopment.
Reconstruction businesses are defined in the City and Residential Environment Maintenance Law as a business to improve residential environment in the areas where dilapidated and old structures are concentrated even though they have good improvement foundations. In other words, the reconstruction business, unlike the redevelopment business, doesn't have to have too much burden on basic installations. They don't have to deal with sites with dilapidated basic foundations, and a heavy concentration of old and unsafe structures. Reconstruction business takes down old houses and builds new houses for the owners of land and improves the residential environment. This is not a business geared to change landscape, land shape, land quality and uses.
The idea of development in the original development profit collection focused on tangible and intangible development and it is unrealistic to relate the reconstruction business to this idea. The object of development profit collection is land, to be specific, the portion that has public investment, not the land owners, related with the decisions on land use plans and revisions.
Profits earned from the reconstruction of old houses, requiring the construction of rental houses on land lots increased up to 25 percent due to the reconstruction and asking for sharing the cost of reconstruction and development in a special manner could be excessive legislation. The current earnings tax on sales is a form of collecting earnings generated from the development. Isn't it unconstitutional to collect taxes on projected earnings on the development work not yet completed? Any perceived causes for problems including those that could be unconstitutional should be eliminated in the legislation process.
The reconstruction development burden sharing system was to be legislated in April under the title of "reconstruction excess collection related law"(tentative name) and enforced beginning this month.
As such, the purpose of the special law legislation is aimed at collecting development profit back from the reconstruction committee members as much as 50 percent, since the government determined that enormous development profits have been a huge cause for spiraling real estate prices.
The reconstruction development profit is calculated as those that are left after deducting the normal housing prices and the development costs from the difference from the housing price following the reconstruction promotion committee approval date and the completion of the construction.
But the problems to this collection idea are the calculation of the value of the old house because it would make a lot of difference in the funds collected and thus likely to be a conflicting point.
The ordinary portion of increased house price is derived by multiplying the rate of the housing prices at the time of the reconstruction committee's approval with the ordinary increased portion. But the increase rate of housing prices before December, 2002, which have no records, will be calculated based on standard price increase rates.
The Ministry of Construction and Transportation plans to use the housing price increase rate by wards prepared by the Kookmin Bank, but the prices of houses would vary even in the same ward and if average housing price increase by wards is used, there would be some households that don't have to pay any of the development cost burden and therefore, the rate should include the prices of houses in cities, counties, and wards to arrive at an optimum rate.
The collection of development profit system has been supplemented with various exceptions in connection with real estate market boosting measures, and the system needs to be improved in the direction of eliminating those provisions providing for exceptions.
From a long-term prospective, what is needed is drawing up the collection system for capital gains and development profits to return them to society to root out speculative investments.
Under the Constitution Law, the provision for protection of properties cannot be limitless. But it should be supplemented by such systems as the transfer earnings tax, a measure to build rental houses with the issuance of national rental housing bonds and the system to have members of the reconstruction committee to share the cost of infrastructure, among others.
In the case of development projects such as the housing land development business, the land purchasing rights should be given to owners of land to be developed for housing sites including those in the vicinity where development projects would have an effect and let the residents in the neighboring areas share the development benefit burden so that the development profit collection system would be reconsidered.
At the present time, the reconstruction committee is obliged to give back the development profit by way of the construction of rental houses and the donation of parks and streets not yet taken into action, which is bound to have arguments for creating a double burden. In practice, the reconstruction of apartments would be made impossible if the cost share of basic foundations, the mandatory requirement for small rental apartments, and the share of the reconstruction development profit burden are implemented.
It is afraid that the housing industry would cool off with the government policies to prevent a boom in the reconstruction projects that are being criticized as being too strong. nw

By Dr. Sohn Song-tae
Former Chief of Staff
The Construction and
Transportation Committee
The National Assembly