In South Korea’s real estate market, one policy has been causing a stir lately—the Reconstruction Excess Profit Reclamation System, commonly known as "Jaechohwan."
Many homeowners and investors view this policy as an obstacle because it significantly impacts redevelopment projects, especially in urban areas. But despite its importance, there’s still a lot of confusion about how it works, how much people actually have to pay, and what’s happening right now in the market.
This guide will break it all down—what Jaechohwan is, how it’s calculated, real-life examples, its effects on the housing market, and what to watch for in future policy decisions.
What Is the Reconstruction Excess Profit Reclamation System?
Simply put, this system taxes a portion of the profit when a homeowner’s redevelopment gains exceed a certain threshold.
- How It’s Calculated: The profit is determined by the difference in housing prices between the time the reconstruction association is established and the completion of the project.
- Basic Deduction: Each member of a reconstruction association gets an 80 million KRW deduction (raised from 30 million KRW in 2024).
- Tax Rate: The government reclaims 10-50% of the excess profit, depending on the amount.
Example Calculation
Let’s say a homeowner earns 300 million KRW in redevelopment profits.
- After deducting 80 million KRW, the taxable amount is 220 million KRW.
- If the highest tax rate (50%) applies → They owe 110 million KRW in taxes.
For many homeowners, this can feel like a massive financial burden, making redevelopment much less attractive.
Redevelopment Projects That Struggled Due to Jaechohwan
Mokdong Complex 6 (Seoul)
- Estimated tax burden: 130-180 million KRW per homeowner
- Internal conflicts within the association led to project suspension.
Jamsil Jugong Complex 5 (Songpa District)
- Estimated individual tax burden: Over 100 million KRW
- Some homeowners protested, delaying the project.
Eunma Apartment (Daechi, Gangnam District)
- Estimated tax burden: Up to 400 million KRW per homeowner
- The reconstruction committee had to reorganize, causing further delays.
Other large-scale developments—including Dunchon Jugong (Gangdong District) and Dunsan Jugong (Daejeon)—have also slowed down due to similar financial concerns.
Why Does This Policy Freeze the Market?
The biggest issue isn’t just the high taxes—it’s the uncertainty it creates.
- Hard to predict profitability at the start of a project.
- Causes conflicts among association members over financial burden differences.
- Policy instability leads to repeated delays.
In cities like Seoul, where new housing is already limited, redevelopment delays further reduce supply—worsening the housing shortage.
Many of the apartments targeted for reconstruction are aging properties, and redevelopment is essential for improving living conditions. However, when Jaechohwan makes projects financially unfeasible, urban renewal slows down significantly.
Current Status & Where the Policy Applies
- In 2024, the basic deduction was raised from 30 million KRW to 80 million KRW, but it hasn’t reduced overall tax burdens much.
- As of 2025, the policy affects 68 apartment complexes across South Korea:
- Seoul: 31 locations
- Greater Seoul Area: 14 locations
- Other Cities: 23 locations
- Homeowners typically face tax liabilities ranging from 100 million to 150 million KRW per person.
Many affected residents have challenged the policy through lawsuits, petitions, and redevelopment suspensions, but the government has not announced any plans to repeal or delay it.
Final Thoughts: Regulations Continue, Housing Supply Shrinks
Jaechohwan remains in effect, restricting redevelopment projects that could increase housing supply in Seoul.
Since redevelopment projects are slowing down, housing supply is shrinking, leading to further price increases.
Recently, real estate prices have risen in certain areas due to demand for newer apartments—but this is a symptom of a deeper problem: lack of housing supply.
If Seoul’s housing crisis is to be solved, redevelopment must be reactivated—and the future direction of Jaechohwan will be a key factor in whether this happens.
Will the government adjust the policy to encourage redevelopment, or will it continue with strict regulations? Whatever happens next, the policy’s impact on the real estate market will be significant.
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