How to avoid multtakji risks when investing in redevelopment properties

Investors targeting redevelopment zones face the risk of "multtakji," where they receive cash liquidation instead of apartment rights. To avoid this, buyers should verify eligibility by checking if land area meets regional standards, such as 90 square meters in Seoul or 60 square meters in Busan.

An increasing number of investors are purchasing villas within redevelopment zones in anticipation of receiving rights to move into new apartments. However, owning a villa does not guarantee the right to a new apartment. If an investor purchases the wrong property, they risk acquiring what is known as 'multtakji'—properties that lead to cash liquidation instead of apartment rights.

According to advice from attorney Kim Ye-rim provided by KB Real Estate TV, the most critical variable to watch during redevelopment investment is "eligibility for distribution." Unlike reconstruction, redevelopment often allows for the separation of land and buildings, necessitating caution. There are cases where distribution rights are granted only when owning land or only when owning a building.

Standards vary by region; for instance, in Seoul, land area must exceed 90 square meters to qualify for distribution, whereas in Busan, the standard may be 60 square meters. If an investor purchases land that was subdivided after the rights determination date, or attempts to meet area requirements by combining shared land interests, they may not receive distribution rights. Since shared land must have maintained the required area since before the split, investors must thoroughly investigate whether area summation is possible before purchasing.

Risks of 'Shared Members' tied to one unit

Disputes frequently arise in redevelopment sites due to the principle that only one distribution right is granted per household. Kim cited a case involving a multi-property owner who held five properties within one zone, where eligibility was restricted based on the timing of the association's establishment authorization. If such an owner sells one of those five properties, the buyer and seller may become "shared members" who must share a single distribution right.

In this scenario, the buyer does not become an independent member of the association but is instead tied to other co-owners, allowing them to apply for only one apartment. "There was a case where a person attempted to apply for distribution only to find they were tied to others, leading to a lawsuit for damages and the rescission of the contract," Kim noted. To avoid this risk, she emphasized that a special clause must be included in the sales contract stating, "The contract may be rescinded if independent membership eligibility for distribution is not recognized." It is also advisable to clearly define financial liabilities.

Even with a special clause, the damage can be immense if the lack of eligibility is discovered late during the management and disposal plan authorization stage. If the premium has already risen significantly, it may not be legally easy to claim damages equivalent to the market price from the seller, as courts only recognize damages that can be specifically proven. Therefore, it is essential to visit the association before signing a contract to objectively verify the existing owner's membership register, consent to the association's establishment, distribution application details, and management and disposal notices. It is recommended to visit the association with the existing owner due to privacy issues.

Distinguishing unauthorized buildings and multi-property owners

Investing in unauthorized buildings within redevelopment zones also requires caution. While demand is high because certain zones allow unauthorized building owners to receive large-sized apartments, the requirements are stringent. Proof via aerial photography showing the building existed before 1989 is required, along with an unauthorized building confirmation certificate. Most importantly, it must be clear that the building has been used for "residential" purposes; unauthorized buildings used for commercial purposes are likely to be excluded from eligibility for apartment rights.

Furthermore, in the case of unauthorized buildings where the roof is connected but the interior is split into multiple households, there is a high probability that separate distribution rights will not be issued without a separate confirmation certificate. Investors must not confuse the "rights determination date" with the "association establishment authorization date." The rights determination date is set to prevent land subdivision, while the issue of multi-property owners is judged based on the timing of the association's establishment authorization.

The sale price of an unauthorized building is formed by adding a premium to the sum of the previous value and the appraised value of the rights. While the total sale price may be low because the appraised value of unauthorized buildings can be as low as a few million won, demand is high due to the low required investment. Additionally, checking the property list through property tax payment records is a viable method for unauthorized buildings.

Selection strategies based on investment purpose

Kim advised that the appropriate project site may vary depending on the investor's age group and purpose. For younger investors focused purely on investment, selecting projects in the early stages may be acceptable. However, for those seeking to settle for residential purposes, they should purchase sites where the management and disposal plan has at least been authorized. However, one must note that many sites become restricted as speculative overheating zones after the management and disposal stage, which can make transactions difficult.

The choice between redevelopment/reconstruction and new apartment construction depends on price, location, and the investor's inclination. If immediate living environment is the priority, purchasing a new apartment is appropriate even at a higher price. If the goal is to expect high value with less capital despite the time required, redevelopment or reconstruction may be advantageous.

Kim advised that before blindly searching for properties, investors should first develop their expertise by sufficiently comparing the characteristics of project sites with the market prices and residential satisfaction of nearby new apartments. Especially for highly popular items like unauthorized buildings that may sell in the afternoon if they appear in the morning, investors should abandon impatience and carefully review eligibility requirements. Finally, she noted that while the Korea Real Estate Board performs feasibility reviews during the management and disposal stage, it is difficult for a buyer to perfectly grasp eligibility in the stages prior to that.

Source: original video (YouTube)