'Pulyeotdaga Joetdaga' Confusing Rental Business Operators

Illegal Activity Reporting Center Activated for 5% Rent Increase Violations
Businesses Assuming 'Annual 5%' May Be Subject to Reporting

New Interpretation of Tax Special Cases... Risk of Significant Reduction in Long-Term Holding Deduction

Industry Concerns Over Rising Monthly Rent Prices

[Asia Economy Reporter Lee Chun-hee] The rental market is freezing as the government tightens regulations on private rental housing registrants. Business operators are strongly opposing through petitions to the Blue House, saying, "When was it ever encouraged, and now we are being labeled as the main culprits of speculation?" There are also concerns that the government's strengthened rental regulations could ignite the 52-week consecutive rise in the jeonse market.

According to the Ministry of Land, Infrastructure and Transport on the 26th, the 'Registered Rental Illegal Activity Reporting Center' has been launched, allowing tenants or third parties to directly report illegal acts by business operators, such as violations of the 5% rent increase limit and mandatory rental period violations. Since the standard for the 5% increase limit was only recently clarified as '5% compared to the previous contract,' interpreting this as '5% per year' means that rental business operators who raised rents by 10% during the usual two-year contract renewal cycle are likely to become targets of reports.

The two-year actual residence clause for reconstruction complexes included in the June 17 real estate measures is also a significant burden for business operators. On the 17th, the government announced a policy to refuse sales applications from association members who have not resided for more than two years in reconstruction complexes in speculative overheated districts in the metropolitan area where the association has not been established. For business operators who have tied up these houses as registered rental housing for 4 to 8 years, they may be forced to settle in cash without any options.

Moreover, new interpretations regarding tax benefits granted to business operators have emerged, increasing confusion in the industry. Recently, the National Tax Service interpreted that "in the case of joint business operators owning rental housing in the form of shares, the tax benefit regulations apply only if the number of households multiplied by the share ratio per resident is one or more." For cases where a couple jointly owns and registers only one rental housing unit, the long-term holding special deduction rate, previously known to be 70%, is at risk of being drastically reduced to 30%.

Three years ago, various incentives were given... Now labeled as 'main culprits of speculation'

The industry's complaints arise from the government's 180-degree change in attitude toward business operators. In 2017, the government implemented extensive incentive policies for business operators. At that time, the government stated that since there were limitations on further expanding public rental housing, private rental housing needed to be increased, but many multi-homeowners hesitated to register as rental business operators due to restrictions on housing sales and increased health insurance premiums. Therefore, various 'carrots' were presented with the intention of "minimizing burdens and increasing benefits to encourage landlords' voluntary registration of rental housing." Business operators were given various incentives, including expanded application of rental income tax reductions, exemption from capital gains tax surcharges for 8-year rentals, a maximum 70% long-term holding special deduction, and an 80% reduction in health insurance premiums.

Subsequently, the number of rental housing business operators rapidly increased. The number of individual registered rental business operators rose from 199,000 at the end of 2016 to 261,000 at the end of 2017, an increase of 31.2%. By the end of 2018, it surged by 55.0% (146,000) to 407,000. Registered rental housing units also showed a rapid upward trend, with 790,000 units in 2016, 980,000 in 2017, and 1.36 million in 2018.

However, after the government took a tough stance on business operators through the September 13 measures the following year, the upward trend began to slow. The government announced that business operators were receiving 'excessive tax benefits' and would apply capital gains tax surcharges and comprehensive real estate tax combined taxation on newly acquired houses. The loan-to-value ratio (LTV) was also reduced to 40% in speculative areas and speculative overheated districts.

The government has since continuously reduced various benefits. Now, business operators may not be able to receive reconstruction association member allocations, and even previously confirmed benefits may be canceled. Furthermore, the ruling Democratic Party and the government are strengthening tenant rights protection through the so-called 'Three Rental Protection Laws'?the rental reporting system, rent ceiling system, and contract renewal request rights guarantee.

The industry is concerned that these successive regulatory tightenings will lead to increases in jeonse and monthly rent prices. According to the Korea Real Estate Board, Seoul apartment jeonse prices have been rising for 52 consecutive weeks since July last year. In fact, the jeonse price for a 59㎡ (exclusive area) unit in Resentz, Jamsil-dong, Songpa-gu, which was 760 million KRW on the 26th of last month, is reportedly now at a record high of 860 million KRW.

An industry official said, "Since there are limits to public rental housing supply, the supply from multi-homeowners is essential to stabilize the rental market," adding, "If the government continues on its current path, there is a high risk that while it may control housing price increases, it will only fuel jeonse price rises."

This content was produced with the assistance of AI translation services.