Although the government has signaled "swift supply measures," many redevelopment sites in Seoul have stalled even after receiving permits. Rigid zoning, a squeeze on project financing (PF) funds, and shrinking relocation loans have halted redevelopment projects across the city. On top of this, the reconstruction excess profit recapture system, mandatory rental housing ratios, and restrictions on the transfer of union member status have weighed on project viability and dampened transactions, holding back redevelopment.
① Rigid Zoning: Low Viability Leads to Abandoned Development
Zoning is an urban planning system that divides land into residential, commercial, industrial, and green areas, restricting the use and density of buildings (building coverage ratio, floor-area ratio, height, etc.). However, the current zoning system, created in 1962, has failed to reflect reality. A representative example is the regulation requiring that at least 10% of total floor area in commercial districts be filled with non-residential facilities. Because this standard lowers project viability, cases of abandoning development continue. In response, at the 6th Urban Redevelopment Committee meeting on the 30th of last month, the Seoul Metropolitan Government eliminated the regulation requiring "non-residential use of at least 10% of the floor-area ratio" that had to be secured in semi-residential and commercial districts, at five preservation-management zones within redevelopment promotion districts: Sinjeong in Yangcheon-gu, Mangu in Jungnang-gu, the Imun living-zone center in Dongdaemun-gu, Hoegi in Dongdaemun-gu, and the Jeonnong 1 district center in Dongdaemun-gu.
② Difficulty Raising Early-Stage Funds: Detours Through Neighborhood Facility Use Changes
As financial authorities have moved to manage the soundness of real estate project financing (PF) funds, the number of redevelopment projects halted due to difficulty raising early-stage funds has also increased. According to the Credit Finance Association's data on PF sites subject to public auction, as of the end of last month, 12 residential facilities in Seoul had failed to break ground, accounting for 75% of the total. Kim Seung-bae, president of the Real Estate Development Industry Research Institute, said, "It is true that the absolute number of distressed sites has decreased as the government's PF cleanup project has proceeded for more than a year, but market conditions have not improved," adding, "Rather, as the financial sector has taken a conservative stance, many sites have had their funding channels blocked." Kang Kyung-hoon, CEO of Jinkyung Construction, also expressed the difficulties operators face at a Ministry of Land, Infrastructure and Transport forum on the 14th of this month, saying, "The mortgage loan-to-value ratio (LTV) for housing rental businesses purchasing homes has become 0%, and as the same LTV is applied to suppliers responsible for new construction supply, abnormal methods have emerged such as changing use to neighborhood living facilities or detouring through savings banks to pay off balances." To supplement this, the Seoul Metropolitan Government has announced a "2026 Redevelopment Project Loan Support Plan" totaling 18 billion won, providing early-stage funds such as design and service costs at 2.5% annually for collateral loans and 4.0% annually for credit loans. The Ministry of Land, Infrastructure and Transport is also operating a "special redevelopment project early-stage cost loan product" at a low 1% annual rate, but it is insufficient.
③ Loan Restrictions Amid Surging Jeonse Prices: Schedules Pushed Back for Lack of Relocation Funds
In addition, amid surging jeonse and monthly rent prices, funds at the relocation stage have shrunk. Kim Myung-hee, chair of the Singil 2 urban complex project, said, "As relocation loans have been blocked by the total household loan cap, relocation at many sites has been halted," pointing out, "This is not speculative but livelihood-based lending, yet the government's supply goals and loan restrictions contradict each other." Kim Deok-rye, a doctor at the Korea Housing Institute, also noted, "The inconvenience arising from relocation loans suddenly being reduced below expectations is significant, and from union members' perspective, the funding plan needs to be resolved first in the short term." In fact, at sites such as Noryangjin District 1 in Dongjak-gu and Cheongnyangni District 8 in Dongdaemun-gu, a considerable number of multiple-home owners and 1+1 subscription applicants have failed to obtain relocation loans, delaying relocation schedules. In response, the Seoul Metropolitan Government independently allocated 50 billion won from the Housing Promotion Fund this February to provide loan support of up to 300 million won based on public redevelopment standards to households unable to obtain relocation loans, and decided to lend up to 70% of construction costs to Moa Towns in which the Seoul Housing & Communities Corporation (SH) participates. A Seoul Metropolitan Government official emphasized, "Relocation costs are not money to buy a new home but project funds needed for smooth relocation during the construction period," adding, "They should be separated from general mortgage loans and regulations to give projects momentum." The Financial Services Commission has also been confirmed to be reviewing the plan to improve redevelopment-related loan regulations proposed by the Ministry of Land, Infrastructure and Transport, and the possibility is being raised that related content will be included in the comprehensive real estate measures scheduled for announcement next month.
④ Rental Housing Supply Burden: Losses Even With Floor-Area Ratio Raised to 50%
The reconstruction excess profit recapture system and the mandatory rental housing ratio for redevelopment are cited as the "Achilles' heel" of redevelopment projects. At the earlier Ministry of Land, Infrastructure and Transport forum, Oh Hyun-seok, chairman of the Garibong District 1 union in Guro-gu, explained, "We sell rental housing at 150 million to 200 million won based on an exclusive area of 84㎡ under Seoul city and Ministry of Land, Infrastructure and Transport standards, but the actual cost including land and construction costs reaches 800 million won," saying, "It is a structure where providing rental housing results in a loss even if the floor-area ratio is raised to 50%." Experts say that differentiated application by region is most important, given that there are many areas without the excess profit recapture system aside from some regions. Lee Jung-sik, head of Seoul's Multi-Family Housing Division, also said, "Redevelopment has a higher mandatory rental housing ratio than reconstruction (35%), making it less viable," having formally requested the government to ease the rental ratio.
⑤ Transactions Dampened by Residency Requirements and Union Member Status Transfer Restrictions
The fact that transactions within redevelopment sites have frozen due to restrictions on the transfer of union member status following the expanded designation of speculative overheating districts also hinders redevelopment. According to Seoul Metropolitan Government data on redevelopment project progress, as of last month, a total of 128 redevelopment sites in Seoul (79 reconstruction, 49 redevelopment) had restrictions on union member status transfers. These include most complexes in "Mokdong New Town" in Yangcheon-gu, "Yeouido Hanyang Apartment" in Yeongdeungpo-gu, and "Banpo Mido 1" in Seocho-gu — core redevelopment sites with high demand. The Seoul Metropolitan Government has requested that the government grant a moratorium on union member status transfer restrictions for areas other than the existing speculative overheating districts of the three Gangnam districts and Yongsan.
