Prosecution takes lukewarm stand over Seongnam City’s land development project allegations

Oct 08, 2021, 08:48 am

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Gyeonggi Governor Lee Jae-myung waves at supporters on his way to attend a council meeting of the province in Suwon on Oct. 5, 2021./ Source: Yonhap

AsiaToday reporter Kim Hyun-goo

There are many circumstances that Seongnam City changed the Daejang-dong development plan several times, giving preferential treatment to asset management firm Hwacheon Daeyu so it can maximize profits. The prosecution is speeding up the investigation of key figures of the snowballing land development scandal, such as the largest shareholder of Hwacheon Daeyu. However, many point out that the prosecution is taking a lukewarm attitude toward the search and seizure of Seongnam City.

According to the legal community on Thursday, the prosecution had raided offices of the Seongnam Development Corporation (SDC) and Hwacheon Daeyu as well as residences of the owners of related companies last month. However, it did not raid Seongnam City Hall, the heart of the scandal. 

The prosecution is known to have not carried out further search and seizure since then. Concerns are rising about the prosecution’s selective investigation as the investigation into Gyeonggi Governor Lee Jae-myung, who was reportedly the final decision maker, and Seongnam City, the starting point of the scandal, has been sluggish. 

Along with the criticism, some in the legal community are concerned about the possibility of destroying evidence. They point out if the prosecutors miss the critical window for securing evidence, it would be more difficult to get to the bottom of the Daejang-dong scandal. 

According to the SDC’s guidelines for the selection of private constructors in February 2015, SDC had planned to construct 5,106 units in the public apartment house sites for its Daejang-dong development project. It also had planned to build 1,603 units of pubic rental apartments of 60-meter square or less. The figure is slightly higher than the legal minimum of 15 percent for the ratio of land area for rental housing under the Urban Development Act.

Experts say the ratio of rental housing is a typical problem that causes dispute between private operators and the government due to low feasibility. They say it is unusual for the government to push a business plan with minimum rental housing ratio. The development plan changed several times, and the number of public rental houses in Daejang-dong even decreased to 221. 

SDC is known to have increased the floor area ratio of 12 apartment complexes in Daejang-dong to 185-195 percent from 180 percent. The business operator of the Daejang-dong project was the Seongnam Garden, a consortium where Hwacheon Daeyu participated. As the floor area ratio increased, the total number of houses increased by about 100, leaving Hwacheon Daeyu earn more than 100 billion won additionally. 

There are also suspicions that SDC ignored internal opinions that have been raised about recovering excess profits of private business operators. In February 2015, both Development Team 1 and 2 of SDC had suggested an idea of recovering excess profits in order to prepare for uncertain economic conditions. However, such idea was omitted from the competition guidelines. 

In May of the same year, SDC’s Development Project Team 1 had submitted an official letter claiming that an individual provision for profit distribution according to the share ratio should be included. However, after 7 hours, an official document asking to review a business agreement without such provision was reportedly sent to the Strategic Business Team under Yoo Dong-gyu, former acting president of SDC.

The article 8 of incorporation of SDC stipulates that matters concerning the acquisition and disposition of important property, extra-budgetary obligations, and the determination of fees must be reported to the mayor in advance. 

In addition, considering that SDC is a public firm fully invested by Seongnam City, suspicions are raised that Gov. Lee, who was by-then Seongnam mayor, was the one who made the final decision on changing the rental housing ratio or floor area ratio. Many claim that it would have been hard for Yoo to carry out the project on his own initiative without consulting with Gov. Lee. 

#prosecution #Seongnam City #Seongnam Development Corporation #Gyeonggi Governor Lee Jae-myung 
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