Preventing the second large intestine… Private-Private Projects Private Profit Rate Restriction – Promotion of the Sale Price Cap System

A measure to restrict the private profit rate is being promoted to prevent the private sector from taking excessive profits from public-private joint projects such as the development project in Daejang-dong, Bundang-gu, Seongnam-si, Gyeonggi-do.

Profits generated in excess of the upper limit of the profit rate are to be reinvested in public purpose projects, and the sale price cap is applied to housing projects in which the proportion of public investment exceeds half.

The Ministry of Land, Infrastructure and Transport announced on the 4th a plan to strengthen the public nature of urban development projects based on such content at the government complex in Sejong.

Kim Heung-jin, head of the Ministry of Land, Infrastructure and Transport, said, “As in the case of Daejang-dong, there was an opinion that there is a problem in the return of excessive development profits to the private sector.

First, the Ministry of Land, Infrastructure and Transport decided to add restrictions on the private profit rate to the Urban Development Act, which is the basis for the development of Daejang-dong.

The current Housing Site Development Promotion Act and the Industrial Site Development Act limit the private profit rate to 6% and 15%, respectively, but there is no such regulation in the Urban Development Act.

A supplementary measure was prepared when critics were criticized that private operators were able to earn hundreds of billions of won in excess profits in Daejang-dong due to such deficiencies in the system.

Specifically, it is discussed whether the law directly stipulates an upper bound on the private profit rate or mandates that a private profit rate cap be set in a shareholder agreement.

Lee Hun-seung (People’s Power) and Jin Seong-joon (Democratic Party), who are members of the National Assembly Land Committee, have already proposed amendments to the Urban Development Act to limit the private profit rate to 6% and 10% of the total project cost in case of a public-private joint project, respectively.

The Ministry of Land, Infrastructure and Transport expected that the amendment of the law would proceed after sufficient comprehensive discussion on the two bills and the government proposal at this regular session of the National Assembly.

The additional profit exceeding the upper limit of the profit rate is expected to be restricted to reinvest in various uses for public purposes in the region.

In addition, the Ministry of Land, Infrastructure and Transport plans to apply the upper price limit system to the sale of houses in projects in which the public investment ratio exceeds 50%, such as the Daejang-dong project. This is a measure to share the sale profits with a number of subscribers rather than a specific business operator.

At the same time, plans to increase the development charge imposed on all development projects, including urban development projects, and reduce the charge reduction and exemption are also being promoted.

This is a measure to strengthen the public nature of the overall public-private joint project. If the development project is carried out in a land expropriation method, the central land expropriation committee strengthens the verification of public contribution in the public interest verification, and the public and private corporations establish a corporation together to carry out the project. In case of implementation, regulations on business procedures and methods will be newly established.

In addition, when an investor directly uses the land created, the use of the land is restricted within the scope of the investment.

The discretion of local governments that can reduce the rental housing duty ratio will be reduced, and the change procedure will be further strengthened to undergo deliberation by the Urban Planning Committee when changing the rental housing site to a sale housing site.

At the same time, the authority to manage and supervise many public-private joint projects granted to local governments will be reduced, and the central government will strengthen management and supervision for the smooth implementation of projects.

This measure also includes the expansion of the subject of consultation with the Minister of Land, Infrastructure and Transport when the head of a local government designates a zone and establishes a development plan from a project of 1 million square meters or more to a project of 500,000 square meters or more.

The Minister of Land, Infrastructure and Transport can request a report on the progress of the public-private joint project to the local government on the operation status of the public-private joint project, and can take corrective action as well as inspection.

“We will continue to focus on system improvement and monitoring so that development profits are not excessively privatized in development projects based on land expropriation,” Kim said.

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