The Special Act on the Management and Promotion of Urban Industrial Areas (the “Urban Industrial Areas Act”) was enacted on January 5, 2021 and will take effect as of January 6, 2022. 

An “industrial area” is a type of zoning area created to promote the convenience for businesses such as manufacturers.  Unlike industrial complexes, there had not been legislation that provided guidance on management or policy support for industrial areas prior to the enactment of the Urban Industrial Areas Act.  Consequently, the lack of management and support for industrial areas resulted in the deterioration of buildings, insufficient infrastructure and support facilities, and lack of private reinvestment. 

As such, the Urban Industrial Areas Act was enacted to resolve these issues and improve the quality of the urban environment of industrial areas to create active hubs for areas where industrial, commercial, residential and cultural functions are clustered.

The Urban Industrial Areas Act requires local governments to designate industrial areas as “industrial improvement zones” or “industrial innovation zones,” thereby enabling the development of industrial areas through improvement projects led by public or private sectors. 

1.   Industrial Area Improvement Zone and Improvement Project 

An industrial area that has inadequate support infrastructure will be designated as an “industrial improvement zone,” while an industrial area that will be used as a multipurpose zone with industrial, commercial, residential, cultural and administrative functions will be designated as an “industrial innovation zone.”  The private sector may also propose to local governments the designation of certain industrial areas as industrial improvement zones or industrial innovation zones.

Industrial area improvement projects may be implemented through any one of the following methods: 

1. Renovation Method: Renovations are carried out by landowners or occupant enterprises in accordance with implementation plans established by local governments.

2. Taking Method: A project developer develops land located within the improvement area by way of taking (ownership or for use only).

3. Land Replotting Method (“Hwanji” in Korean): A project developer develops land on behalf of landowners and replots/redistributes the developed land to the landowners in exchange for a stake in a portion of the developed land.

4. Management Disposition Method: Land and buildings acquired through the improvement project are allocated to the original landowners.

2.   Special Regulations Concerning Industrial Area Improvement Projects

The Urban Industrial Areas Act provides for various special benefits to promote industrial area improvement projects.  The key benefits are as follows:

1. The local government may relax certain construction restrictions and building coverage and floor area ratio requirements imposed by the National Land Planning and Utilization Act;

2. Industrial innovation zones may be designated as “areas with minimum restrictions”¹ under the National Land Planning and Utilization Act; 

3. Industrial innovation zones may be exempted from the provisions of the Housing Act (regarding placement of houses, standards for the installation of ancillary and welfare facilities and standards for building sites), the Parking Lot Act (regarding the establishment of ancillary parking lots) and the Act on Urban Parks, Green Areas, Etc., (regarding the obligation to secure urban parks and green areas); and

4. The national or local governments may provide financial support for industrial area improvement projects and may reduce or waive charges for development, traffic inducement, infrastructure installation and metropolitan transport facilities.

Implications

The Urban Industrial Areas Act has established legal grounds for transforming industrial areas with high potential value because of their proximity to advanced industrial facilities or multipurpose zones with commercial, cultural and residential functions.  The various special regulations and benefits described above are expected to revitalize private sector investment in industrial areas.

Companies and individuals who own real properties in industrial areas or developers who intend to pursue improvement projects in industrial areas should closely review in advance the procedures for implementing improvement projects and the details of the relevant special regulations and benefits provided under the Urban Industrial Areas Act.  Real estate developers, construction companies and financial companies, including asset management companies, securities companies and trustees, are also expected to take interest in the Urban Industrial Areas Act to develop the land in industrial areas.

The enforcement decree and the enforcement rules of the Urban Industrial Areas Act, which will include more details of the Urban Industrial Areas Act, are scheduled to be adopted by subsequent legislation later this year.