Amid calls to abolish the reconstruction excess profit recapture system, Land Minister Hong Ji-seon to weigh home prices and property rights

[Financial News] Hong Ji-seon, Minister of Land, Infrastructure and Transport, said the Ministry would also offer its views if the National Assembly takes up discussions on revising the Reconstruction Excess Profit Recovery System (reconstruction excess profit recapture system). He said the system’s effect on stabilizing home prices and the issue of infringement on individuals’ property rights should be considered together. On the recent trend of listings accumulating and transactions declining, he noted that the market could be entering a period of falling home prices.
On the 12th, Minister Hong appeared before the 7th plenary meeting of the National Assembly of the Republic of Korea’s Land, Infrastructure and Transport Committee and presented the 2027 budget proposal and fund management plan. Kim Eun-hye, a lawmaker from the People Power Party, asked for MOLIT’s position, arguing that the system should be abolished to increase the supply of private housing.
Minister Hong replied, “For now, a bill to abolish the system is pending before the National Assembly.” He said, “I don’t think the system itself is something that can be judged as unconditionally right or wrong,” adding, “It clearly has an effect on stabilizing prices in the housing market, but it can also infringe on individuals’ property rights, so I think these matters need to be considered comprehensively.”
Tae Jun Ahn, a lawmaker from the Democratic Party of Korea, said the current method of recouping excess profits needed to be revised. However, he pointed out that it had not been empirically established that abolishing or easing the system would increase housing supply or bring forward the timing of supply. Minister Hong replied, “I can’t say for certain,” but added, “If discussions move forward, MOLIT will also present its views.”
On June 5, 2024, Kim Eun-hye introduced as lead sponsor a bill (Bill No. 2200148) to repeal the law that provides the basis for reconstruction charges. In August of the same year, the Land, Infrastructure and Transport Committee referred the bill to a subcommittee at a plenary meeting. The subcommittee reviewed the bill article by article that November.
Under current law, excess profits are calculated by subtracting the home value when the levy began, the normal increase in home prices, development costs and other items from the home value when the levy ends. The charge is waived if the average excess profit per association member is 80 million won or less. Association members who, when the levy ends, are one-home owners in a single household and have held the home subject to reconstruction as such for at least six years may receive a reduction in their share of the charge based on their holding period.
The Constitutional Court of Korea has also ruled on whether reconstruction charges infringe on property rights. On December 27, 2019, the Constitutional Court upheld the provisions under review concerning the collection of reconstruction charges and the calculation of home values, with six justices voting in favor and two against. The two dissenting justices said the provisions imposed an excessive burden on homeowners and violated the principle of proportionality.
Kim Mi-ae, a lawmaker from the People Power Party, asked what led Minister Hong to conclude that there were signs of home-price stabilization. He replied, “The continued accumulation of (housing) listings and the decline in transactions could be seen as a signal that we may be entering a period of (housing-price) declines to some extent.” He added that “prices in Seoul’s three Gangnam districts have already been falling for some time, while the pace of increases in the city’s outlying areas has slowed,” and forecast that if the benchmark interest rate rises at the end of the year, the downturn could spread to other regions.
Kim said the government’s home-price measures focused only on declines in the three Gangnam districts. Minister Hong replied, “That is not the case at all.” Regarding President Lee Jae-myung’s recent comment that home prices in major areas had fallen to a surprising degree, Hong explained that the point was to ask for balanced reporting on rising prices in Seoul’s outlying areas and declines in places such as Gangnam and Yongsan District. On instability in the rental market, Minister Hong said, “Providing sufficient housing is the fundamental solution, so we will continue to expand the supply of rental housing, particularly in the capital region.”
[email protected] Seung-hyun Ahn Reporter