KIEAE Journal

Recently, interest in research on residential areas in sustainable cities has been growing. Particularly, rapidly distributed houses in the past as the government’s effort to increase the housing distribution rate [1], have aged and are on the verge of change. Therefore, as part of the new governmental redevelopment project that increases the housing distribution rate by replacing aged houses with new ones, a cash settlement system has inevitably emerged. This study seeks to identify the causes of the problems resulting from this system by carrying out an in-depth analysis of each stage in the existing cash settlement system.

Once an area is declared for redevelopment, its residents are incorporated as cooperative members by the Urban Residential Environment Improvement Act (Urban Redevelopment Act). This is when external entities such as investors purchase real estate in the area at a low price and form cooperative memberships. The termination condition (30% approval) for the project becomes nearly impossible to satisfy as numerous non-residents obtain cooperative memberships; the national average rate of residents that are in favor of the cooperatives forming in their residential spaces is less than 24% [2]. The rest of the members that oppose the redevelopment become eligible for cash settlements. This problem is found across the nation excluding Seoul, where real estate prices are high. Cities outside Seoul, including metropolitan areas, have higher incidences of conflict due to low profitability [3]. In particular, numerous redevelopment projects were carried out in Incheon Metropolitan City in the past 20 years and many are in still in progress [4].

The cash settlement system was implemented to compensate cooperative members that renounce their ownership of the property. In the current Urban Redevelopment Act, the conditions for application of cash settlements are insufficiently defined, and conflicts are resolved in court. Consequently, people suffer losses, and redevelopment is slowed down [5].

Incheon is a city of high-value added tourism in combination with its international airport and logistics center. It is a geographically and economically advantageous region that can help boost local economies, which is a major objective of the national government. Therefore, various urban renewal projects occur in this region. However, the aging housing in the redevelopment areas occupies 62.66% (allowance 40%) of the city, and redevelopments require 17.5 years on average [4]. This study interviewed cash liquidators to analyze the cause of cash liquidation conflicts and delays in projects and understand cash liquidator rights.

This study investigates problems related to cash settlement faced by cash liquidators in redevelopment projects in Incheon city. Field research was conducted to gather data on the interests and demands for improvement. Issues regarding cash settlements were analyzed to draw implications for future redevelopment area policies.

This study consisted of four steps: literature review, case study analysis, field survey, and devising measures for improvement based on the results. Literature on domestic redevelopment project cash settlements (academic theses, reports, laws/systems, etc.) was collected in the first step to examine the current circumstances. Case studies were scrutinized, and problems in each procedural step of the cash settlement were identified.

A face-to-face interview and a questionnaire survey were carried out in parallel for the field conditions research. Cash liquidators’ reasons for settlement fee application and methods of cash settlement were analyzed. Several categories (cooperative, appraiser, Local Land Acceptance Committee, Central Land Acceptance Committee, the National Tax Administration, and local government) were created to characterize and distinguish the interests involved in cash settlements and draw improvement measures for each stake.

Redevelopment projects demolish old houses and aesthetically disruptive buildings and construct new housing to recover city function.

There are three main regulations related to cash settlements for such projects. First, the scope of cash liquidators is defined in Article 47, Paragraph 1 of the Urban Redevelopment Act: those who did not claim ownership, those who withdrew ownership, and those excluded from ownership by the management and disposition plan. Cash liquidators are also defined in Article 44 of the articles of association laid out by the Ministry of Land, Infrastructure, and Transport. Paragraph 5 of Article 44 includes non-contractors of ownership as cash settlement subjects after the approval of management and disposition. Second, the payment period of the cash settlements is regulated. Article 47 of the Urban Redevelopment Law differentiates the payment period according to the reason for cash settlement. The executor must settle the payments to those who do not claim ownership and those who withdrew ownership within 150 days after the ownership application deadline. Meanwhile, the payment period for non-contractors according to Article 44, Paragraph 5 of the articles of association is not regulated. According to precedents, the day after the ownership contracting period (specified by the management and disposition plan) was the standard date of cash settlement. Third, the settlement fee calculation method is regulated. Article 48 of the Urban Redevelopment Act lists the procedures for the cash settlement. The fee is calculated through consultation between the executor and the holder of cash settlement rights. Additionally, the average amount of the settlement fee determined by two or more appraisers recommended by the mayor/governor is taken into consideration.

Research trends regarding cash settlements are organized in Table 2.

Despite the continuous research on cash settlements and related conflicts, the number of studies on this topic remains low. A study closely related to cash settlements investigated the legal decisions concerning the conflict of the New Town Project (Kim, 2010). The proposed resolutions from the study were considered. In addition, an in-depth analysis was carried out to find a solution to the fee allocation issue and propose a better method. Jang (2017) indicated the necessity for research on the legal nature of the cash settlement system and analyzed the distinguished cash settlement methods (settlement method of the maintenance cooperative, the cooperative member, and the tenant) found in the Urban Redevelopment Act. Jang (2017) distinguished the cash settlement method of the tenant for analysis, but the improvements are considered to be limited to the content from the Urban Redevelopment Act. Kang (2019) considered the reasons for a cash settlement to be the following: 1) unapplied and withdrawn ownership, 2) uncontracted ownership, 3) re-selection as owner in heavily invested areas, and 4) exclusion by the management and disposition plan. This study focused on the cash settlement calculation criteria to identify practical issues and find solutions for settlement amounts.

Considering the above literatures, current research on cash settlements tends to be conducted on legal interpretations and practical affairs. In contrast, cash liquidator surveys in this study were conducted by both indirect and direct (visiting the redevelopment area) methods. The cash liquidators’ opinions on the persons concerned were investigated to analyze the reason for the delay in the progress of redevelopment projects. These aspects differentiate this study from previous studies.

A redevelopment district located in Incheon Metropolitan City was selected as the research area. The recolonization rate or the cash liquidator ratio appeared to be similar across the nation [6]. This is because cash settlements are administered by the same methods for all domestic redevelopment districts. It is considered that both traits of redevelopment in the capital area and other local areas are observed in Incheon.

Fig. 1. 
Map of Incheon

Currently, 107 districts in Incheon are redeveloping. Their distribution across lower-level local governments are as follows: 4 districts in Gyeyang-gu, 15 in Namdong-gu, 8 in Dong-gu, 32 in Michuhol-gu, 42 in Bupyeong-gu, 1 in Yeonsu-gu, 5 in Jung-gu, and none in Seo-gu, Ganghwa-gun, and Ongjin-gun. Consequently, a total of 16 areas were selected for field condition research in proportion to the number of redevelopment districts: 1 in Gyeyang-gu, 2 in Namdong-gu, 2 in Dong-gu, 4 in Bupyeong-gu, 6 in Michuhol-gu, and 1 in Yeonsu-gu.

Project progress from 2004 to August 2021 in the selected 16 areas showed that five areas are under management and disposition in 2021, two areas are under migration, and nine areas are under construction. The lot areas are distributed in the 5,169-219,134 ㎡ range. One district was in the management and disposition phase even after 17 years since the redevelopment phase, and one other was in the construction phase even after 11 years. Therefore, the impact of cash liquidators on the project progress was systematically investigated in this study.

Only residents in the litigation process and objections based on the valuation of assets were surveyed, therefore, the areas currently in the management and disposition approval phase, migration phase, and construction phase were selected for this study. The residents (cash liquidators) under the litigation process from these areas were selected, and the subjects for the survey were recommended by the members of the Emergency Response Committee. Questions regarding the current status and directions for future progress were addressed, countermeasures were intensively consulted, and data were collected. The survey lasted about 65 days (January 10 – March 15, 2021), and a 1:1 visiting survey was conducted to collect detailed information. A total of 69 questions (9 related to the cash liquidator, 31 to relevant cooperatives, 12 to appraisers, 5 to the Local Land Acceptance Committee, 5 to the Central Land Acceptance Committee, 4 to the court, and 3 to the National Tax Administration) were surveyed. In total, 4,071 items were surveyed through 1:1 interviews with 59 subjects.

Fig. 2. 
Age Distribution of 59 Subjects

The cash liquidators were distinguished into objecting residents and litigating residents. The age groups of the 59 survey participants were as follows: 5 in their 50s or younger, 22 in their 60s, 24 in their 70s, and 8 in their 80s or older. There were 46 participants between ages 60 and 80, accounting for 78%. Instead of the actual price, an assessed value which is 125~180% of the declared value (depending on the building area) is announced after notice of project approval. Most assessed values are arranged to be lower than the current market price, therefore, many survey participants were dissatisfied with the compulsory execution of the system. They complained for over an hour about their inevitable relocation to underdeveloped areas with the settlement fee they receive. They hoped for more detailed measures from the cooperative or the government, and wanted their opinions to be heard.

The survey began with a question regarding the current status of the survey participants and the redevelopment area they belonged to. To pay the monthly rent for their subsequent place of residence, many elderly subjects chose to settle with cash rather than lose ownership of their houses.

Those dependent on a fixed income from leasing commercial and residential spaces were fearful of receiving apartment ownership in exchange for their 99.17~231.41 ㎡ real estate. The survey results regarding the reasons for cash settlement showed that no need for housing was the most common (33.9%, 20 cases) response.

Additionally, eight subjects (13.6%) responded that it would be difficult to afford living in an apartment without fixed income, which reveals their fear of change. Those who did not respond accounted for 8.5%, which indicates that some residents are conflicted.

Among those entitled to cash settlements, the most frequent response to the furthest objection stage (among the designated objection methods of the Urban Redevelopment Act) was administrative litigation (61%, 36 cases). Many subjects inquired whether additional fees were receivable for each phase and sought advice on minimizing losses and the optimal stage for migration.

The survey content on relevant organizations consisted of a question regarding the cash liquidators’ appraisal upon receiving and inquiring about the redevelopment cooperative’s official documents. After the project approval, the first appraisal value of the cooperative’s selected appraiser (one), local governments’ recommended appraiser (one), and the cash liquidators’ recommended appraiser (one) become basic data for the redevelopment project. The deviation of each appraisal value must be within 10% to qualify for submission to the cooperative. The appraisal is adjusted by the three appraisers before the delivery, and the cooperative pays the appraisers. The survey questioned the subjects’ appraisal on the difference in satisfaction levels towards this basic data and on eviction suits after depositing valuated assets with the court following the adjudication of objection. The appraisers’ method of visiting the fields to calculate the appraisal value based on obstructions, building appraisal values, concession, and migration cost calculations were questioned. The first objection to the Local Land Acceptance Committee’s calculated appraisal value was administered, and the appraisal towards the two appraisers appointed by the local government visiting the field was questioned. The same method of having two appraisers appointed by the local government for the Central Land Acceptance Committee was also questioned. Questions were asked regarding the administrative litigations (1st, 2nd, and 3rd trials) to the court, the re-appraisal of the current assets by the court-appointed appraiser, and the evaluations made after the demolition of existing buildings and obstructions being fundamental. Finally, the transfer and income tax must be voluntarily declared to the National Tax Administration and the local governments within 60 days from the date of payment receipt. The questionnaire asked about tax incentives for the area of relocation and business relocation after the making deposit.

The average time required for the redevelopment projects in 16 areas was 14.4 years, which is usual considering the average time required (17.6 years) for Incheon City’s redevelopment projects.

No. ① the Geumsong District founded a steering committee in 2004, and even after 17 years it remains in the management and disposition approval stage, due to numerous conflicts. The project period is extended due to the conflict between the cooperative and the cash liquidators regarding the project. No. ⑯ the Ganseok Elementary School area founded a steering community in 2010 and had fewer types of conflicts compared to other areas. After gaining project approval, conflict elements were rapidly eliminated, and the area is currently under construction. After passing through the cooperative steering committee in three months, the project was cleared by the cooperative establishment within one year and two months. The redevelopment in Incheon proceeded with prospects of obtaining social interest and pride. This area was settled before the drop in real estate prices, which led to reduced conflict.

However, the area size has no relation to the project proceedings. The conflicts are causing delays and cash liquidators play a crucial role in them. The Geumsong region (162,623 ㎡) is still in conflict and stuck in the process of management and disposition approval, with 2021 year being the 17th. The Orkreyon Daejin Villa (8,548 ㎡) is approving management and disposition and has been in the process of redevelopment for 13 years. In contrast, the Ganseok Elementary School area (55,705 ㎡) with project implementation since February 2010 is currently under construction. The Songnim District 5 (5,169 ㎡), 16 years in redevelopment, is currently under construction despite its size. These results show that project size, in terms of area, does not have a significant relationship with the speed at which the redevelopment process moves forward.

The 10 major districts which suffered for long periods in the cooperative steering committee, spent 11 years and one month on the project before the approval of the establishment of a cooperative that rapidly cleared the conflicts. After the approval of the management and dispositions, the time required before the beginning of migration/construction was three years and one month. However, the area is currently entangled in another conflict over construction company replacement. The Cheongcheon District 2 had three years and seven months until their cooperative establishment and had been reducing time spent in conflicts more than other areas. Currently, the conflict between the cooperative and the constructor is delaying the construction, and the management and disposition approval and migration/construction start period was considerably extended. Redevelopment was moving fast in the area and there were few conflicts between cooperative members, but after some time, the settlement fee and cooperative member allocation fees were announced, and conflict has since intensified. The cooperatives that experienced conflicts in the initial stages were quick to comprehend the conflict intensities and cash settlements, but the project is delayed due to another conflict between the cooperative members.

The project delay depended on the feature and the parties proceeding with the redevelopment project. Here, the appearance of opposing forces and conflicts extend the project delay, as can be seen in Fig. 3.

Fig. 3. 
Required Period of Redevelopment Phase (Months)

Every cooperative experiences extension in project periods due to cash settlement conflicts. In particular, the Sipjeong District 3 spent 11 years and 10 months on the management and disposition approval alone. During this time, serious conflicts between cash liquidators and cooperative members led to lawsuits for small fights and a considerable waste of administrative energies. Conflicts that broke out from the cooperative steering committee resulted in lawsuits even after the management and disposition approval phase and the migration/construction start phase, and during the construction phase. The reasons for conflicts include social disagreements, and struggle for power between factions. Each phase has conflicts, and with each progress in the phase, the cash liquidators’ forces decrease.