New Reconstruction Rights Announced

The government has decided to assume some local reconstruction approval authority in an attempt to keep housing price increases in check in Seoul’s Gangnam and Metro areas.

The government and Uri Party will announce follow-up measures to the August 31 comprehensive real estate measures, including the above, around the end of February.

The government’s decision is based on the recent rise in housing prices in Gangnam, Yongin City in Gyeonggi Province, and Bundang in Seongnam City.

Kang Pal-mun, the head of the Ministry of Construction and Transportation’s residential welfare division said at a press conference yesterday, “We will check whether reconstruction authority is fairly distributed between central and local governmen. Some of the local government authority may be transferred to the central government.”

Kang added, “Government agencies, political parties, and the government itself are discussing fundamental reconstruction measures. We will announce follow-up August 31 measures, including reducing sales prices and increasing the supply of housing sites at the end of next month.”

Regarding reconstruction authority, extended city governments including Seoul can currently formulate basic urban city plans, and smaller local governments can devise urban improvement plans, designate urban improvement areas, run safety inspections and approve the creation of reconstruction committees.

The government’s measures regarding the reconstruction authority are based on the judgment that housing prices surged after the Seoul City Council publicized its plan to allow a higher floor-area ratio (the ratio of above-ground floor area to land area) and higher heights for Gangnam reconstruction apartments.

According to housing price research conducted by Kookmin Bank, apartment unit prices in Gangnam-gu, Seoul, have been increasing since mid-December 2005.

The price of apartment units that cost 25.54 million won per pyeong (1pyeong being appx. 3.3 square meters) as of December 19, 2005, rose to 25.56 million won per pyeong on December 26, 25.81 million won per pyeong on January 2, 2006, 26.07 million won per pyeong on January 9, and 26.34 million won per pyeong on January 16.

A 34-pyeong unit of the Eunma apartments in Daechi-dong, Gangnam-gu, a barometer of the reconstruction market in Gangnam area, recently sold for one billion won on January 10, up 34.30 million won from a week ago.

However, the Seoul City dismissed the government’s plan to assume reconstruction authority, saying, “They are virtually impossible.”

A Seoul City official denounced the measures, saying, “The urban improvement plan and floor-area ratio adjustment plan, which are the core part of reconstruction authorization, should be the local government decisions, not central government ones. The central government wants to pass the buck to the local government bodies regarding the failure of its real estate measures.”

Some people are concerned that the government’s measures will cause trouble between the central government and local government bodies over reconstruction authorization, a situation which could result in the destabilization of housing prices.

Seung-Heon Lee ddr@donga.com beetlez@donga.com