Tuesday, May 23, 2017

Another appraisal in Seoul: Eminent Domain in a "Property Price Announcement" system

This US citizen is suing for better eminent domain compensation

Imagine having your property taken by the government and not being fairly compensated.  The 5th Amendment to the U.S. Constitution guarantees Americans and others “just compensation” for the taking of their private property, usually at market value or maybe value in use. Article 23(3) of the Constitution of the Republic of South Korea also provides that  expropriation, use, or restriction of private property for public necessity and compensation therefore shall be governed by law, provided that in such a case, just compensation shall be paid.

Suppose a U.S. citizen has her residence taken in a foreign country and is offered unfairly low compensation for the taking.  If the foreign country has a free trade agreement with the USA, such as South Korea, that U.S. citizen has the right to a hearing of her grievance at ICSID, (International Centre for Settlement of Investment Disputes)an arbitration subsidiary of the World Bank, which is an international institution. Most hearings take place at their Washington, DC offices, but other closer venues are being made possible.

As I explained in a previous blog post about a Korean appraisal assignment,(http://www.internationalappraiser.com/2016/08/an-appraisal-of-commercial-property-in.html), a Korean appraiser separately values land and building, similar to what is done by U.S. tax assessors or German appraisers.  Government-ordered appraisals, however, are not allowed to estimate the land's market value. Instead, appraisers must consult a "Official Assessed Land Price" system in which land values are annually determined by the Minister of Land, Infrastructure and Transport. This is a departure from the concept of market value that underpins the concept of "just compensation" in the U.S. and Korean constitutions, to a "price announcement system" in use by other countries with high urban land price inflation, such as Costa Rica, where appraisers consult a map to determine the land value. The government therefore prevents property owners from receiving market value in their own misguided efforts to control land prices.
 
Korea’s Official Assessed Land Price system was enacted in 1989 as a countermeasure against land price inflation. It was designed to act as a price control, but price controls are often counterproductive, as seen during the Nixon-era price controls enacted in the U.S. in the early 1970s. It only proves the scarcity of land or goods, which in itself is what enhances value. This concept is usually presented in the first chapter of any appraisal textbook.
 
The irony of the heavy use of eminent domain by the Seoul Municipal Government for redevelopment projects is that the government itself is creating the land scarcity that drives up land prices.

Seoul is a rapidly growing city that now has twice the population density as New York City.  Land prices have consequently skyrocketed, and there is nothing a price announcement system can do about that.  One example: last year Hyundai bought a 20-acre site in Gangnam for more the $10 billion ($500 million per acre) to build their new corporate headquarters. Samsung was the rival bidder.

While this particular condemnation lawsuit I am involved in might seem just like a chance for a property owner to get rich, there are hardships involved for the family who has to relocate. They explain that the approximately $700,000 offered to them is inadequate to find a substitute residence in an area where comparable houses are now priced closed to $2 million. So this becomes a hard luck story, too.
 
For all other U.S. citizens, including naturalized citizens, who fail to get fairly compensated for government-seized properties in other countries, this is an example that justice can still prevail.  Please feel free to contact me with your situation.
 

Other related posts:

http://www.internationalappraiser.com/2016/08/an-appraisal-of-commercial-property-in.html
http://www.internationalappraiser.com/2011/05/oversupply-shock-wave-hits-seoul-cbd.html




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