MOLIT to Strengthen Publicness of Urban Redevelopment Projects
The author is an analyst of NH Investment & Securities. He can be reached at minjae.lee@nhqv.com. -- Ed.
MOLIT is aiming to strengthen the publicness of urban redevelopment projects by limiting the upper limit of the private profit rate to 10%. At this juncture, it is difficult to predict the mid/long-term direction of the real estate market due to differing policies of the major presidential candidates. Given such, uncertainties towards the construction industry are likely to amplify over the near term.
Strengthening publicness of urban redevelopment projects to be discussed in earnest
With the Korean presidential election drawing near, the profit structure of redevelopment projects conducted in Daejang-dong, Seong-Nam has emerged as an issue (Seong-Nam has been the political base for candidate Jae-myung Lee in recent years). The Korean Ministry of Land, Infrastructure and Transport (MOLIT) is soon expected to push for measures to restrict the profits of private players involved in urban redevelopment projects. And, the publicness of all public-private joint projects is to be strengthened, the authority of local governments is to be reduced, and the central government’s management and supervision efforts are to be beefed up.
In the case of redevelopment projects that private development companies (including construction players) perform, both business progress speed and profitability are predicted to decrease in consideration of current regulations and real estate market conditions. In particular, as the amendment to the Urban Development Act submitted to the Standing Committee of the Korean National Assembly limits the upper limit of the profit rate of private companies to less than 10%, large construction companies are likely to be reluctant to participate.
Differing real estate policies of presidential candidates stoking real estate market uncertainties
Both ruling party candidate Jae-myung Lee and main opposition party candidate Seok-yeol Yoon are pledging to supply 2.5mn new housing units during their tenure if elected, as a fundamental solution to the real estate problem. However, while Lee is arguing for public initiatives, Yoon is emphasizing private initiatives. In terms of regulations, Lee is advocating the strengthening of regulations to block real estate speculation, whereas Yoon is promising deregulation in order to spur real estate transaction activity.
As we enter 2H21, pre-sale failure is being seen for apartment projects in 5 metropolitan cities (Busan, Daegu, Daejeon, Ulsan and Gwangju) and 8 provinces (Gangwon-do, Gyeongsangnam-do, Gyeongsangbuk-do, Jeollanam-do, Jeollabuk-do, Chungcheongnam-do, Chungcheongbuk-do, Jeju-do). Given such, the 2022 apartment pre-sale volume target is unlikely to exceed the initial 2021 target of 450,000 units. With the two major candidates sharply differing on how to deal with real estate problems, uncertainties towards the construction industry are to amplify in the run up to the Mar 2022 presidential election.