hankyoreh

By Hong Yong-duk, Senior Staff Writer　

The country’s New Town projects are turning into a battleground. Conflict is sharpening by the day between associations, renewal companies, and outsourcing companies pushing the projects on one side and resident committees opposing them on the other.

Why are these companies seemingly staking their lives on the New Town efforts? The projects are planned by local governments but implemented by residents. The scale of the efforts in the roughly 2,000 urban renewal regions just in the greater Seoul area, including New Towns, is estimated to be greater than 400 trillion won ($370.8 billion).

Among these, the New Town projects in particular have been pinpointed as “deep blue ocean” for construction businesses facing difficulties due to a stagnant real estate economy, pulling renewal companies and other related businesses into the fray in search of opportunities to land a big fish.

During an interview with the Hankyoreh on April 25, the president of one renewal company said, “The commission fees received after selecting a construction company as a project provider are in the 500 million to 5 billion won range.”

The formal term for renewal companies is “specialized renewal project management companies.” In an effort to prevent direct involvement by project providers, the government has required renewal companies equipped with capital and expertise to support the establishment of resident associations and drafting of project implementation approvals.

The result, however, has been the emergence of renewal companies with unparalleled power, but minimal resources. Currently, there are around 400 renewal companies nationwide, 217 of which are crowded into the city of Seoul.

According to law, renewal companies are selected following the formation of an association establishment promotion committee. In reality, however, they go to work as soon as the project announcement is made. The outsourcing companies primarily work to extract agreements from landowners and residents on behalf of the residents who support the project, and the renewal companies help with the pursuit as a sideline or in competition.

According to observers in the industry, associations designate the businesses as renewal companies for their project zone and even give them decision rights on the construction.

A renewal company official said, “The service fees we earned for a ten-year project are about 600 million won, and we have to focus on that because they give hundreds of millions of won at a time when you link the order with a construction company.”

Small-scale renewal companies spend around 500 million won, nearly the sum total of their capital, on expenses such as association support for the early years of the project. For them, a cancellation of the New Town effort would be a 100 percent guaranteed bankruptcy, so they have no choice but to give everything on the project.

The strict food chain structure among certain associations, renewal companies, outsourcing companies, and construction companies surfaced as a social issue last year. The Uijeongbu District Prosecutors’ Office arrested seven people on charges of taking about 4.5 billion won for six leading domestic construction companies after helping their selection as providers. The individuals arrested included the 46-year-old head of renewal company “L” and a 53-year-old association head, both identified by the surname Kim and the latter charged with taking 90 million won from renewal and construction companies.

“While the renewal company is acting as the de facto project organizer, deceiving residents as it carries out the effort, and the construction companies are merely looking after their interests, residents are suffering terribly,” said Lee Jae-chun, chairman of a federation of groups opposed to New Towns in Gwangmyeong.

Within this opportunistic project structure with the various parties eying commission fees, the public nature of the New Towns has been pushed into the background. According to data from the Presidential Committee on Social Cohesion, some 212 administrative lawsuits have been filed in New Town project zones since 2007, and greater Seoul area courts have taken up around 4,000 civil cases. The majority of these are annulment suits raising objections over the formation of association promotion committees or the establishment of associations.

Industry officials said the situation with renewal companies is even more extreme in Gyeonggi Province than in Seoul. While the latter introduced a public administration system last July for redevelopment and reconstruction districts with the stated goal of preventing “renewal company damages,” the former has no such braking device in place.

Please direct questions or comments to [englishhani@hani.co.kr]