KLRI : KOREA LEGISLATION RESEARCH INSTITUTE

Ⅰ. Backgrounds and Purposes

▶ The project to improve small-scale housing is an alternative solution to overcoming the limitations of large-scale housing improvement projects, such as the redevelopment or reconstruction projects previously carried out under the Act on the improvement of urban areas and residential environments. Those who drew up the plans for such projects expected to increase the percentage of original dwellers deciding to remain in their residential areas by mitigating the construction-related regulations and simplifying the project procedure, in order to bring about positive effects such as invigoration of the local economy through the regeneration of downtown areas.

○ The limitations of the large-scale improvement projects include ① the disintegration of local cultures and communities due to the uniform nature of such projects, ② the unease felt by those close to the project areas due to the way long-term residents were being forced to vacate those areas en masse, ③ the difficulty in securing initial funds or reducing the project costs, ④ and the efforts to discourage local residents from taking part due to the public sector’s unilateral promotion of the project.

▶ Contrary to what was originally intended with the introduction of the Act on Special Cases concerning unoccupied house or small-scale housing improvement, projects aimed at improving small-scale housing are not being invigorated. It is judged that this lack of invigoration is in part due to the low profitability associated with the high unit price of the work and the heavy cost of promoting the projects, which are small-sized, and in part due to the slowing down of such projects amid the cooling off of the real estate market caused by the tightening of market regulations.

○ To invigorate projects for the improvement of small-scale housing, the Act on Special Cases concerning unoccupied house or small-scale housing improvement needs to be improved and support provided to such projects under other laws. However, the enactment of the said Act and amendments to other relevant laws were not carried out together, and the situation serves to inhibit the invigoration of such projects.

▶ This study intends to review the need to amend the relevant laws at both the theoretical and practical levels in order to invigorate the projects to improve small-scale housing under the Act on Special Cases concerning unoccupied house or small-scale housing improvement.

 

Ⅱ. Major Content 

▶ The limitations of the Act on Special Cases concerning unoccupied house or small-scale housing improvement and the improvement projects for small-scale housing

○ The improvement project for small-scale housings was first adopted with the enactment of the Act on Special Cases concerning unoccupied house or small-scale housing improvement in 2017 in connection with the need to secure the safety of people threatened by a large number of dilapidated houses in the small sectors of cities and put an end to the ongoing deterioration of the residential environment. In the ensuing period, the said Act was amended on four separate occasions and amended by other act on six occasions, i.e. very frequent given the short two-year period of execution.

○ The improvement project for small-scale housing has a complex rights-obligations relationship; it is linked to diverse legal relations and relevant laws as it involves the administrative offices in charge of urban management and the works carried out in cities, and this inevitably results in complicated interrelationships. The improvement projects for small-scale housing are not being invigorated due to lack of support stipulated in the relevant laws or regulations under the tax laws. 

○ Nonetheless, there still is a need for such projects, so it is necessary to focus on devising ways to invigorate them in order to renovate and improve dilapidated small-scale housing in downtown areas. 

▶ Problems with the Act on Special Cases concerning unoccupied house or small-scale housing improvement

○ The said Act pursued the following goals from the legal perspective: ① the omission of improvement plans and the designation of zones, ② the omission of the committee for promoting the establishment of an association, and ③ the procedures for authorizing project implementation plans and management and disposal plans, respectively, as part of a way to simplify the project implementation procedure stipulated in the Act on the improvement of urban areas and residential environments. However, the simplification of such procedures resulted in legal loopholes and conflicts. 

○ It is judged that the Act on Special Cases concerning unoccupied house or small-scale housing improvement has the following limitations from a working-level perspective:  ① a lack of economic benefit due to the limited size of the project zones, ② a higher burden on association members due to the high cost of the project, ③ a decline in commercial benefits due to reasons associated with other laws, ④ a lack of institutional support for invigoration of the project based on other laws.

▶ Direction of improvement of the system for invigorating small-sized improvement projects

○ Granting association members the right of occupation in housing improvement projects in city blocks and exemption from transfer tax on previously owned housesWith regard to a housing improvement project in a city block carried out in the form of an association, the members of such associations now have the right of occupation, but the current Income Tax Act does not recognize their right of occupation in a housing improvement project within a city block, leaving them liable to pay transfer tax. It is necessary to change this.

○ Imposition of tax on associations as non-profit corporationsUnder the Act on Special Cases concerning unoccupied house or small-scale housing improvement, a housing improvement association is defined as a non-profit corporation like those under the Act on the improvement of urban areas and residential environments. Conversely, under the Corporate Tax Act, it is viewed as a for-profit corporation, and is thus subject to a wider range of taxation. It is necessary to change this too.

○ Need to exempt associations from VATUnder the Value-Added Tax Act, an association’s allocation of houses to its members based on the management and disposal plan shall not be viewed as the supply of "goods”. Thus, it runs counter to the principle of fair taxation to impose VAT on association members. It is necessary to change this clause.

○ Need for acquisition tax reduction/exemption under the management and disposal planOwners of land, etc. to whom a house is allocated under the management and disposal plan  maintain their rights to the previous house. Thus, it is not right to view their new house as an “acquisition,” which is a condition for taxation under the Local Tax Act. Rather, there is a need for either reducing the acquisition tax for such persons or exempting them completely from the legal requirement to pay acquisition tax.

○ No imposition of development chargesDevelopment charges are levied to recover a certain amount from the beneficiaries of “development gains.” The project for the improvement of unoccupied houses and small-scale housing is designed to increase the supply houses by improving existing dilapidated/poor houses, and thus it is not right to view it as a process aimed at making development gains. Improvement projects for small-scale housing are subject to development charges, while other similar improvement projects are not. It is necessary to change this.

○ Exceptions to the use of temporary accommodationsThe measures for relocating residents are an important procedure. Where the public sector takes part in the said project, they may invigorate the improvement projects for small-scale housing by allowing the residents to use their rental houses, etc. as temporary accomodations, thus making it easier to relocate them.

○ Adoption of a system of transfer of rental houses under the Special Act on Public HousingIt is necessary to invigorate the improvement projects for small-scale housing by reducing the burden of project costs borne by the association, such as by establishing the legal basis for the transfer of rental houses built under the improvement projects for small-scale housing with the participation of the public sector.

○ Adoption of a system for purchasing unsold houses after approving the completion of construction worksIt is necessary to invigorate the improvement projects for small-scale housing by reducing the project-related risks through the public sector’s purchase of the portion left unsold out of the portion for ordinary sale upon completion of the project, whereby the public sector takes part in the improvement projects for small-scale housing.

○ Adoption of exception concerning applications for land alterationA project involving land development requires the alteration of land, and thus an application for land alteration entails certain costs, but the Act on the Establishment, Management, etc. of Spatial Data contains a clause under which certain expenses related to a project for housing improvement carried out under the Act on the improvement of urban areas and residential environments are exempted. However, such an exception is not recognized for improvement projects for small-scale housing, although they fall under the same category. It is necessary to change this. 

 

Ⅲ. Expected Effects

▶ Studies concerning the need to improve the clauses related to tax exemption/reduction in tax related laws concerning the improvement projects for small-scale housing may be used as policy materials to make it possible to execute projects more efficiently by alleviating the burden borne by an association or its members.

▶ Studies on the legal basis for using the systems in the laws related to the improvement projects for small-scale housing, in which the public sector takes part, may be used as basic materials for the invigoration such projects, which are slowing down at present.