1. Objectives and Achievements of Expropriation and Compensation System
Art. 23-3 of the Korean Constitution stipulates that “Expropriation, use, or limitation of private property due to public necessity and with regard to compensation shall be governed by an Act so that just compensation shall be paid.” Hence, expropriation, which means compulsory deprivation of private property rights by the governmental authority for public needs, is based on the assumption that there is a necessity for the public good when private property is to be compulsorily acquired regardless of a person’s will as stipulated in Art. 23-3 of the Constitution. As for just compensation designated by the Constitution for individual infringements of private property rights that require compensation in the enforcement of law and order, the compensation, in principle, means full compensation that the objective value of expropriated properties should be completely indemnified.
For the last 60 years, the Korean economy has achieved an astounding development that is called “the Miracle of the Han River.” Korea was one of the world’s poorest countries at the time of the national liberation in 1945 and it went through a three-year long Korean War from 1950. However, it grew into one of the world’s leading trading powers. Its per capita income, which was merely 255 USD in 1970, reached 22,000 USD as of 2012.
One of the most important factors that enabled the Korean economy to achieve such a great development was the consistent expansion of its social overhead capital and its wellplanned national development projects. Its urban land increased from 3% of the entire national territory in 1975 to 7% as of 2012 while its agricultural land decreased from 23.2% to 20.6% and its forest land from 68.5% to 64.1%, or a decrease of 2.6%p and 4.4%p respectively. Its urbanization rate was 39.1% in 1960, but it drastically increased up to 90% in 2005 as its economic development intensified the density of population in urban areas. As it reached the level of urban maturity, Korea went through the slowdown of the urbanization after 2005 and its urbanization rate in 2012 slightly increased to 91%. The level of road extension increased 4 times from 27.1km² in 1960 to 105.7km² as of the end of 2012. The pavement rate also increased from 3.7% in 1960 to 83.4% as of the end of 2012.
Korea had adopted the replotting method more frequently than any other methods as the main way of land development until the 1980s. The replotting method did not change the rights before and after the implementation of the urban development project but transferred those of the existing land to the newly established land after projects. As Korea’s economic development progressed, urbanization accelerated. Although the demands for land and houses in cities increased, such demands were not satisfied in a timely manner, which led to speculation in lands and houses. The government promoted the direct land development strategy through the public-managed development method as an alternative to cope with the drastically increasing expropriation of urban land and to collect the profits from land development for the public good. As for the public-managed development, the agent of public projects conducted negotiations for the purchase of the target land and then compulsorily acquired the property right in the way of expropriation when the owner did not accept the offer. Hence, the public-managed development was on the basis of expropriation and compensation system. To this end, the government established the Housing Site Development Promotion Act in December, 1980, introduced the publicmanaged development, and established the Korea Land Development Corporation (currently, the Korea Land and Housing Corporation), a government-funded development corporation for land development in 1978. The public-managed development is regarded as quite effective in easing the housing problem for ordinary people in a way that establishes large-scale housing complexes in metropolitan areas in a short period of time and appropriate for providing land for public housing at low prices. As a result, the housing supply rates increased more than 100% in just 20 years.
2. Backgrounds and Needs of Expropriation and Compensation System
There was no expropriation and compensation system before the 1960s. Although the principle of expropriation and compensation and security of property rights were specified in the Constitution in 1948, the land expropriation during the time was in accord with the Land Expropriation Decree established during the Japanese colonial period.
In the 1960s and 1970s, the government had to cope with the increasing demands for public facilities and infrastructures. In the early 1960s, the restoration projects of such public facilities as railroad, road, and harbor were conducted mainly with foreign assistance, which contributed to the restoration to the level before the War. An industrial structure was established centering on consumer goods production and simple processing of raw materials. A great influx of rural population into the cities for job opportunities led to the rural-to-urban migration trend. As the economic development plan successfully progressed as part of industrialization, the phenomenon of urbanization, which was common among developed countries, started to appear outstandingly in metropolitan areas such as Seoul, Busan, Daegu, and Incheon. Accordingly, the Land Expropriation Act was established to secure land for public projects. Thereafter, land lots for industrial complexes and public facilities were purchased at a lower price in accord with this act to facilitate economic development projects. In the 1980s and 1990s, the government had to cope with the demands for the development of industrial complexes and housing sites. In the process of rapid economic growth in industrialization, a large number of people migrated into metropolitan areas and industrial complexes, which led to a serious problem of housing shortage. In response, the 5 million housing unit supply plan was presented. In the 1980s, however, the way to secure public land was through forcing landowners to sacrifice lost ground, and the voices asking just compensation for the loss grew louder. It was of urgency, therefore, to present an institutional measure for expropriation and compensation. In response, the government attempted to improve the laws to realize just compensation while maintaining the basic frame of the Land Expropriation Act and the Act on Special Cases Concerning the Acquisition of Lands for Public Use and the Compensation for Their Loss from the 1980s to 1990s. In the year 2000, the government initiated its active development of new towns. Since the 1980s, the government acquired and developed more urban land through expropriation and compensation according to the Housing Site Development Promotion Act. In the mid-2000s, especially, the balanced regional development project was promoted to solve the problem of uneven regional development as the population was concentrated in the metropolitan area including Seoul. As large-scale national projects involving the construction of administrative cities, innovative cities, and company cities progressed, the land compensation scale was rapidly expanded that it increased from about USD 7.2 billion in the early 2000s to about USD 27.2 billion in 2008. The compensation legislation, which was divided into the Land Expropriation Act and the Act on Special Cases Concerning the Acquisition of Lands for Public Use and the Compensation for Their Loss, was integrated as the Act on Acquisition and Compensation for Land, etc. for Public Works (hereunder,the Land Compensation Act) in 2002 to streamline the procedures and standards regarding compensation, improve various unreasonable institutions, protect the property rights of the nation faithfully, and promote efficient implementation of public works.
3. Strategies and System of Expropriation and Compensation
First, Korea utilized the officially assessed land price system and certified public appraiser system for the secure objectivity of the compensation evaluation. The Land Compensation Act stipulates that as for lands acquired through negotiation or arbitration, the compensation is decided in reference to the officially assessed land prices as specified in the Public Notice of Values and Appraisal of Real Estate Act (Art. 70). When a project operator estimates the amount of compensation, three appraisers are appointed to evaluate the properties.
Second, it promoted resettlement and living measures in reflection of the residents. In Korea, the measures for resettlement and livelihood were developed to ease the conflicts with original inhabitants who were forced to move out in the process of large-scale housing site development projects in the past. For instance, the Multifunctional Administrative City Construction Project initiated in 2005 took the measures for resettlement and livelihood in full reflection of the residents’ opinions presented in such meetings as those of the Compensation Council, inhabitants’ presentation, residents’ discussion, etc.
Third, an organization to ease conflicts concerning compensation was operated. Since the compensation of land lots within public works districts directly affected personal property rights and may cause conflicts among interested parties, the head of the local government was eligible to establish and operate a Compensation Council to ease civil complaints and reflect the inhabitants’ opinions. In addition, the Land Expropriation Committee was operated to judge disputes on expropriation and compensation for loss between the project operator and landowner or related parties in a just and neutral perspective.
2) System of Expropriation and Compensation
The supreme legislation of expropriation and compensation in Korea is the Constitution. Art. 23-3 of the Korean Constitution stipulates that “expropriation, use, or limitation and compensation of property rights for public needs shall be designated by law, but just compensation shall be paid.” To specify the aspects of expropriation and compensation in the Constitution, the Land Compensation Act is referred to. This Act stipulates general aspects of expropriation and compensation such as scope of public works, details and standards of compensation, compensation procedure, objection, etc. Since expropriation is an exceptional case where the public justly infringes private property rights, important aspects concerning expropriation and compensation are to be specified by law, and other details delegated to law are handled in related Enforcement Ordinances. In particular, separate instructions are arranged for objectivity of compensation valuation. Other practical of each project operator, resettlement measures, etc.
4. Contents and Current Condition of the Expropriationand Compensation System
To sum up, the general procedures of expropriation are as follows: ① preparation for public works, ② project approval, ③ preparation of land protocols and goods protocols, ④ negotiation, ⑤ adjudication, and ⑥ filing objection or administrative litigation. The principles of compensation include the principle of a project operator’s compensation obligation, principle of advance compensation, principle of compensation in cash, principle of compensation by individual, principle of lump sum compensation, principle of project implementation profits and set-off prohibition, principle of fair market value compensation,and principle of exclusion of development gains.
Compensation for Land, etc. is as follows:
? Land: As for estimation of land compensation, the price at the time of concluding the negotiation or that at the time of adjudication of expropriation or use shall be the basis (Art. 67 of the Land Compensation Act), and the project operator shall indemnify indemnified persons individually. As for land restricted by public law, it shall be evaluated as it is under the restriction.
? Remaining Land: When the price of the remaining land decreases or involves some loss due to acquisition or use of a group of lots that belong to the same landowner or when new structures such as passages, ditches, and fences are to be newly built up in the remaining land, the project operator shall provide corresponding compensation for the loss or construction expenses.
? Ground Structures Such As Buildings: For building compensation, the cost method shall be adopted in evaluation. As for residential buildings, however, the sales comparison approach shall be adopted when the price based on the sales comparison approach is higher than that based on the cost method and when the building price is classified as divided ownership according to the act on the possession and management of aggregate buildings.
? Sales Compensation: Sales compensation is applied when the sales shop is closed or suspends business because of the public work. This is reasonable compensation for expected loss of business, specifically for income or profit, and additional loss related to the business activity rather than for the property value of the business itself.
? Compensation for Agriculture, Stock Raising, and Fishery: As for loss of farm products in land where the harvesting has yet to begin, such factors as type and maturity of farm products shall be comprehensively taken into consideration. As for farmland included in public works, incomes from farm products as part of the total income of the agricultural industry for each province reported in farming household economic statistics by a statistics agency are divided by the cultivated acreage specified in the current condition of sample farmhouses in each province. This total yearly average income from farm products per unit farming area in each province is doubled for the amount of compensation for agricultural loss. Such businesses as hatchery business, egg gathering business, stock breeding farming, and livestock breeding business registered according to the Livestock Industry Act are subject to compensation for stock raising.
When the number of farm animals reaches a certain level as well, the business will be counted for compensation for stock raising. As for the amount of compensation for fishing rights, the cases are divided into when fishing is cancelled, when fishing is suspended, and when fishing is restricted. Afterwards such factors as the remaining value of facilities, investment, expected profit, and fixed cost during the suspension are considered in estimation.
The amount of compensation shall be paid in money in principle, but the current Land Compensation Act stipulates compensation in bonds and compensation with the land developed by the public works for exceptional cases. For immigrants who lost their former residence due to public works, measures for resettlement and living are provided. Those entitled to resettlement measures are persons who provide their residential buildings for public works and thus lose their basis for livelihood. Types of resettlement measures include formation of a settlement, provision of housing sites or houses, special supply of national housing to the head of a household who does not own a house, temporary use of national rental housing complex, supply of resettlement funds, supply of moving expenses compensation, etc. For immigrants who lose their basis for living, livelihood stabilization subsidies, occupational training, and job offers are provided.
2) Current Condition
In analysis of expropriation and compensation statistics for 37 years from 1976 to the present, Korea has expropriated land as large as 5,855.9km² in total for public works,which accounts for 5.85% of the entire national territory (100,148km²). The yearly average amount of land compensation was 160 billion won (USD 145 million) in the 1970s, 1.3 trillion won (USD 1.2 billion) in the 1980s, 7.1 trillion won (USD 6.4 billion) in the 1990s, and 15.4 trillion won (USD 14 billion) in the 2000s. The total amount of land compensation for the last 10 years since 2003 reached about 181.7 trillion won (USD165 billion), among which the amount of housing and housing site projects accounted for about 92.4 trillion won (USD 84 billion, 50.8%) and that of road projects about 30.7 trillion won (USD 28 billion, 16.9%). The total amount of compensation for the last 10 years since 2003 reached about 213.6 trillion won (USD 194 billion), among which the amount of land compensation accounted for about 181.7 trillion won (USD 165 billion, 84.7%), the largest portion, and life compensation such as resettlement measure accounted for about 5.3 trillion won (USD 4.8 billion), only 0.3% of the entire amount of compensation.
In analysis of land prices over the surrounding regions of the road construction project areas including housing sites, it turned out that the officially assessed reference land price over those regions increased 5 to 10 times. Such increase of land prices in adjacent regions would cause a sense of deprivation to expropriated persons in the project area as well as additional expenses for exchange of land in reality. Hence, it is necessary to manage the land prices over the surrounding regions of the development project. Supervision of possible compensation speculation after a development project is also necessary.
5. Evaluation of the Expropriation and Compensation System
1) Success Factors
The success factors of the expropriation and compensation system in Korea are as follows:
First, Korea has provided legal systems for the smooth operation of public works. The Land Compensation Act stipulates the procedures of negotiation prior to expropriation to simplify the process of acquisition of land and minimize disputes with property owners.
Second, The Korean Constitution specifies the just compensation with regard to property expropriation. To this end, the Land Compensation Act stipulates time modification from the reference time of compensation for the just estimation of the amount of compensation. However, development gains are excluded from the estimation of compensation.
Third, it stipulates the establishment and operation of a Compensation Council to embrace civil opinions and ease civil complaints.
Fourth, the compensation evaluation and publicly noticed land price systems are operated to secure objectivity of compensation. When a project operator has to estimate the amount of compensation for land, etc., at least two appraisers shall be entrusted for evaluation of land, etc.
Fifth, the Land Expropriation Committee entrusted for adjudication concerning expropriation of land, etc. is divided into the Central Land Expropriation Committee and Local Land Expropriation Committee.
Sixth, for large-size housing site development projects, an institution for resettlement measures and measures for livelihood have been developed for the settlement and stable residence of original inhabitants who are forced to move out.
Seventh, as for obstructions, moving expense compensation shall be provided in principle, and acquisition expense compensation is a provision for exceptional cases.
Eighth, bonds indemnity and indemnity with the land developed by the public works are operated in addition to cash indemnity as compensation methods.
The Expropriation and Compensation System of Korea needs to be complemented regarding the following aspects:
First, it is necessary to reconsider the level of publicly noticed land prices for the indemnified persons to satisfy the amount of compensation. When the amount of compensation is estimated in accord with the Land Compensation Act, it is viewed as realization of just compensation. In reality, however, expropriated persons are only slightly satisfied with the given amount of compensation in Korea.
Second, it is necessary to manage the prices of the surrounding areas of the public work district. However, since landowners around the project area earn development gains while expropriated persons are excluded from development gains, the principle of equity is certainly violated. To guarantee substantial just compensation, therefore, there should be an institutional measure to collect development gains around the area of public works.
In addition, various compensation measures may need to be made use of such as stricter regulation of land use in a way of designating an urbanization-coordination zone to restrict speculation over the surrounding areas, etc., regulation of land transaction with the intent of speculation including designation of land transaction districts, prohibition of cash compensation flowing into the surrounding areas, and so forth.
Third, it is also necessary to diversify the types of development projects. Korea has depended mainly on the total acquisition method so far. Since the total acquisition method is based on compulsory expropriation of the owner’s land, it has limitations in fundamentally resolving the conflicts of compensation. Hence, it is necessary to seek ways of utilizing the replotting method for public works such as housing site development rather than compulsory expropriation of private property rights of landowners, etc.
Fourth, it is vital to prevent compensation speculation. Hence, the project district management must be strengthened by means of aerial photographs, for instance, and it must cope with illegal/unauthorized development and construction acts.
The implications of the case of the Expropriation and Compensation System of Korea before developing countries are as follows:
First, it is vital to carry forward measures for resettlement and livelihood progressively. For immigrants who are forced to move out after expropriation, resettlement and measures for livelihood are essential. However, to establish resettlement and measures for livelihood as the original inhabitants want would cause more compensation expenses, and thus the project operator has to seek ways to minimize the expenses while he proceeds with the public works. Hence, social consent is required concerning the level of compensation for resettlement and measures for livelihood especially among developing countries.
Second, project conditions need to be taken into consideration in expropriation and compensation. In view of the case in Korea, it is difficult to apply land development through expropriation to existing residential areas, while it is advantageous to develop new towns in non-urbanized areas at the outskirts of a city and develop an industrial complex. To develop a central area of a city where land prices are high and many people reside, it is desirable to develop the land through replotting based on the agreement of the land owners.
Third, it is necessary to establish a government-funded development corporation. Korea has supplied urban lands within a short period of time by establishing the joint development agency called the Korea Land and Housing Corporation in addition to the project operation method of public-managed development promoting large-scale land development. It also has considered the public good by collecting development gains publicly and reinvesting into development projects such as rental apartment construction. Likewise, developing countries need to collect development gains publicly in line with land development and establish a government-funded development corporation to promote large-scale development projects promptly.