The Seoul Metropolitan Government will expand relocation loan support for redevelopment projects to include refinancing loans, aiming to accelerate the pace of such projects. The city will raise the loan limit from 300 million won to 500 million won and broaden eligibility from small and medium-sized associations with 500 or fewer members to all associations. The Housing Promotion Fund for relocation loan support will also be increased from the current 50 billion won to 100 billion won. Seoul Mayor Oh Se-hoon, who was elected on a pledge of "Rapid Integrated Planning (New Integrated Planning 2.0)" to speed up existing redevelopment and reconstruction projects, is expected to push a campaign to accelerate redevelopment projects by prioritizing the resolution of relocation cost issues.
According to the Seoul Metropolitan Government and others on Wednesday, the city has decided to expand relocation loan support along these lines and is pursuing a revision of its ordinance. The city believes that faster relocation can lead to quicker groundbreaking and completion, and intends to accelerate redevelopment projects by expanding relocation support.
Following last year's June 27 lending regulations and October 15 measures, single-home owners were subject to a loan-to-value (LTV) ratio of 40 percent, multi-home owners to 0 percent, and a loan limit of 600 million won. As a result, a considerable number of redevelopment associations have experienced project delays due to insufficient relocation funds. The city has been providing relocation loan support since last month using 50 billion won from the Housing Promotion Fund, but critics pointed out that a first-priority mortgage lien was mandatory, meaning those who already had loans could not receive support. "We determined that it was necessary to expand the eligibility for relocation loan support to achieve the goal of breaking ground on 85,000 homes by 2028," a Seoul city official said.
Seoul Mayor Oh Se-hoon, who was elected in the June 3 nationwide local elections, was briefed on the status of redevelopment projects at his first executive meeting after returning to office, and reportedly instructed officials to proceed in a way that would fulfill his campaign pledges of breaking ground on 310,000 homes by 2031 during his term and 85,000 homes within three years. The reason the Seoul Metropolitan Government is expanding the direct relocation loans it began offering last month to include refinancing loans and raising the loan support amount to 500 million won is its judgment that securing relocation funds in redevelopment projects has been blocking entire projects. During his local election campaign, Oh had said, "I will supply housing by revitalizing private redevelopment projects," adding, "If elected, I will ask the central government to ease relocation loan regulations for redevelopment projects."
According to the Seoul Metropolitan Government, relocation costs for redevelopment projects are divided into basic relocation costs, which association members raise from financial institutions using their homes as collateral, and additional relocation costs, which involve a construction company lending funds to the association, which then lends to its members. In last year's June 27 measures and October 15 measures, the government reduced the basic relocation loan limit in land transaction permit zones to 600 million won. For single-home owners, the LTV was cut from 70 percent to 40 percent, while multi-home owners were subject to 0 percent.
There were repeated complaints that the government's relocation loan restrictions dealt a heavy blow to redevelopment sites in Gangbuk. Because many residents own aging villas, the financial burden on long-time residents was considerable. The majority of multi-household owners were elderly and often relied on rental income, but under the 40 percent LTV limit, it was difficult to simultaneously secure both the jeonse (a Korean lease system requiring a large lump-sum deposit instead of monthly rent) deposits to return to tenants and their own relocation funds.
Additional relocation loans backed by construction company guarantees also placed a heavy burden on the northern districts. At large-scale sites such as those in the Gangnam area, the strong credit of major construction companies allows relocation funds to be raised at an added rate of about 1 to 2 percentage points above the basic relocation cost. In contrast, at small-scale sites such as Gangbuk's Moa Town, mid-sized construction companies with relatively lower credit often participate as builders, and the added rate also rises to 3 to 4 percentage points. This is why the city, after starting direct relocation loans, expanded the program to include refinancing loans. The aim is to ease the burden on members of small-scale projects in Gangbuk, who struggle to cover interest payments due to the high added rates, thereby encouraging faster relocation and groundbreaking. In addition, since many members of small-scale reconstruction and redevelopment associations have already taken out loans, the move also serves to expand the scope of eligible projects.
Raising the support amount to 500 million won follows the same logic. The plan is to enhance effectiveness in consideration of jeonse prices, which continue to rise daily. Suh Jin-hyung, a professor of real estate law at Kwangwoon University, said, "The Seoul Metropolitan Government's expansion of relocation loan support will be of great help to small-scale projects such as Moa Town, which have had difficulty raising funds, rather than to large associations that can raise funds through construction companies."
The city also plans to increase the Housing Promotion Fund's relocation loan resources from the current 50 billion won to around 100 billion won to ease the funding burden on households scheduled for relocation. Park Won-gap, senior real estate expert at KB Kookmin Bank, noted, "There is no speculative demand, and loans related to supply need to be approached differently from lending regulations related to simple purchases," adding, "I expect it will have a positive impact on supply."
Despite the city's emergency injection, some point out that the amount is far too small compared to relocation cost demand. Since there are 85 zones targeted for the rapid groundbreaking of 85,000 homes within three years that Oh pledged, the demand for support could reach trillions of won. Accordingly, the Seoul Metropolitan Government is continuously requesting that the central government separate relocation costs as essential project expenses for housing supply rather than household loans, and apply an LTV of up to 70 percent.
In addition, measures such as offering incentives on public contributions when construction companies lower relocation loan interest rates are also being discussed. An official in the redevelopment industry said, "Since the 100 billion won put forward by the Seoul Metropolitan Government is only enough to put out the immediate fire, cooperation between the central and local governments, associations, and construction companies appears necessary to revitalize urban redevelopment projects."
Meanwhile, according to the Seoul Metropolitan Government, 39 of the 43 reconstruction and redevelopment sites planning relocation in Seoul this year, or 91 percent (31,000 homes), are facing difficulties in securing relocation funds. Except for three sites that received management disposition approval before the regulations took effect and one project that secured relocation funds in advance through Korea Housing & Urban Guarantee Corporation (HUG) guarantees, groundbreaking is being delayed due to relocation costs.
