Government Legislation Ministry says financial test applies to development proposals

The government legislation ministry said that developers registered under the Housing Act and qualifying under Article 11(1)(8) of the Urban Development Act must meet a financial-soundness standard when proposing an urban development zone, not only when applying to be designated as project operators.

Corporations must show no net loss in the income statement disclosed for the applicable year, or for the previous year if no statement has been disclosed.

The interpretation in case 26-0515, requested by Cheongju in North Chungcheong Province, concerns developers qualifying under Article 11(1)(8) of the Urban Development Act. That provision applies to housing-complex developments and related infrastructure.

The ministry said Article 11(5) allows entities meeting specified qualifications for project operators to propose a zone designation. Although the enforcement rule identifies the application for operator designation as the date for assessing financial soundness, the ministry said that wording does not exclude examination of the requirement when a zone is proposed.

Proposal filings must include material on the development method and period, proposed operator, financing, land use and acquisition plans, and baseline surveys including land measurements. Authorities may give a proposer priority in designating the project operator. Such developers must also obtain consent from owners of at least two-thirds of the land area in the proposed zone, and the prescribed consent form identifies the proposer as a prospective operator.

The ministry said assessing financial soundness only at the operator-application stage could allow a financially unstable corporation to participate in a project through the proposal process. It recommended updating relevant rules and forms to make the assessment's reference date clear.