Same Apartment, 600 Million Won Apart: Redevelopment Betterment Levy Splits Prices

In an apartment complex in Seocho District, Seoul, two price tags for the same 84-square-meter unit differ by 600 million won. The gap comes down to whether the seller or the buyer bears the 'betterment levy' (redevelopment capital gains levy) paid to the state when redevelopment drives up property values. The listing is in a 2,000-household redevelopment complex that began occupancy in August. A local real estate agent explained: "5.2 billion won excludes the levy; units in the 5.8 to 6.0 billion won range include it." In other words, the same apartment can command vastly different prices depending on who covers the levy.

The redevelopment betterment levy is calculated by subtracting from the current price the property's value at the start of redevelopment, the accumulated appreciation, and construction costs. The government and local authorities recoup a set portion of the windfall gain. Introduced in 2006 to reclaim part of the profits from redevelopment, the system was repeatedly postponed and amended, and it was never actually levied on a large-scale project during that time.

A levy on a redevelopment complex in Seocho District, Seoul, which passed the five-year mark after completion, is expected to be finalized before year's end. More than 60 complexes nationwide are estimated to be subject to the levy. Park Won-gap, senior real estate expert at KB Kookmin Bank, said, "Market uncertainty is also growing, because once the levy is enforced in earnest, returns will shrink accordingly." There are also warnings that imposing the levy could lead to a contraction in housing supply.