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Developers Permitted to Make Profit from Industrial Sites

Project developers can now make profit from sites for industrial facilities in free economic zones, and requirements for reinvestment of development profits will also be eased.

These revisions are expected to facilitate development of about 30 project districts which do not have project developers yet.

The Ministry of Trade, Industry and Energy (MOTIE) announced last week that the revised Enforcement Decree of the Special Act on Designation and Management of Free Economic Zones will take effect last Tuesday. The Enforcement Decree addresses the price of sites for industrial facilities, reinvestment requirements for project developers’ development profit and requirements for project developers.

The revised Enforcement Decree was introduced to facilitate the development of project districts which do not have project developers or show relatively slow development due to low profitability.

When the proportion of sites for industrial facilities in a project district exceeds 50 percent, developers can make profit within 15 percent of its construction cost. Currently, sites should be offered at a price lower than the construction cost, which has caused low participation in project districts with a high proportion of industrial sites.

The reinvestment ratio of profit gained from development used to be set at 25 percent to 50 percent, but was changed to 25 percent to reduce the burden on project developers.

The change was made because it was difficult for project developers to estimate the size of reinvestment, and the ratio was not consistent with the 25 percent stated by the Restitution of Development Gains Act.

The revised Enforcement Decree allows construction companies to be designated as project developers if the assessed value of their construction capability exceeds the annual average of construction costs stipulated in the free economic zone development plan. So far, only 20 large construction companies could participate in projects due to difficult requirements.

The Enforcement Decree also allows large project districts wider than 3.30 million m2 to be divided into sections and developed in stages.

The previous regulation that required large districts to be developed all at the same time required massive construction costs, creating difficulties for project developers.

To prevent disorderly development, MOTIE set the minimum size of a development area to 30 percent of the total size of a project district. Project developers should also receive residents’ opinions and development plans should undergo a review by the Free Economic Zone Committee.

MOTIE forecast that the revised Enforcement Decree will eliminate barriers in development projects and facilitate participation from private construction companies.

MOTIE is also planning a revision of the Special Act on Designation and Management of Free Economic Zones to complete the development of free economic zones by 2022 and attract foreign direct investment of USD 20 billion over the next 10 years.

However, project districts which fail to find developers or establish development plans will lose their status.

Source Text

Source: Yonhap News (Aug. 12, 2013)

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