Lease Three Laws, Negative Impact More on Building Materials Industry than Construction Sector

Decrease in Moving Demand as Jeonse and Wolse Replacement Declines
Acquisition and Comprehensive Real Estate Tax Strengthened by July 10 Measures, Sales Expected to Freeze

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] As the amendment to the Housing Lease Protection Act, known as the "Three Lease Laws" (Jeonwolse Reporting System, Jeonwolse Rent Cap System, and Contract Renewal Request Right System), has been fully implemented, interest is growing regarding whether it will affect stock prices in related industries. Analysis suggests it may have a negative impact on building materials industries rather than construction industries.

The government held an extraordinary cabinet meeting on the 31st of last month to review and approve the Three Lease Laws, which were then immediately enforced without a grace period following President Moon Jae-in's approval. Accordingly, if a tenant requests contract renewal between six months and one month before the lease period ends, the landlord cannot refuse without just cause. To refuse, the landlord must prove significant damage caused by the tenant’s use or that the landlord (including direct lineal ascendants or descendants) needs to reside in the property. The rent increase at the time of contract renewal is capped at a maximum of 5%.

As a result, current tenants can extend their stay for an additional two years with a 5% rent cap, but after the additional renewal expires, there is a forecast that rents, which could not increase during this period, may rise sharply.

In the stock market, it is expected that the building materials sector will be directly hit by the implementation of the Three Lease Laws rather than the construction sector. Since the market is already focused on sales for non-homeowners and single-homeowners for actual residence, and there are no factors likely to reduce subscription enthusiasm, the construction sector is expected to be largely unaffected. Seungjun Kim, a researcher at Heungkuk Securities, said, "As there are still those aiming for 'lottery sales' due to the price ceiling on pre-sale and high pre-sale price management policies, subscription demand will not decrease. Rather, as the number of jeonse (long-term deposit lease) listings decreases, subscription demand from non-homeowners will increase."

On the other hand, the situation is different for the building materials sector. This is because the replacement of jeonse and monthly rent leases, which used to occur every two years, is now extended. In the past, rent increases forced tenants who did not meet conditions to move, circulating jeonse and monthly rent supply. However, stabilization of rent prices and extension of lease periods may reduce demand for moving due to decreased demand for switching to purchase and reduced lease replacements. Researcher Kim analyzed, "A decrease in moving demand is expected to negatively affect sales of interior materials. With the increase in acquisition tax rates and strengthening of comprehensive real estate tax from the July 10 measures, purchase demand is expected to decrease, and even moving demand for jeonse and monthly rent will decline."

He added, "Although building materials performance this year recorded consecutive quarterly surprises thanks to increased sales transaction volumes compared to the same period last year, it is difficult to expect performance growth next year due to the July 10 measures and the current Housing Lease Protection Act."

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