[Initial Perspective] A Cautionary Tale: Venezuela's Real Estate Policy

[Asia Economy Reporter Yoo In-ho] Landlord Mr. A decided to simply evict a tenant who had lived there for four years because he could not raise the rent.

The new tenant is also unlikely to meet the desired rent level, and since there is a high possibility that rent increase requests after the contract will not be accepted, the landlord plans to leave the property vacant.

Private construction companies have also started abandoning rental housing projects as the government's price and development controls have made these projects unprofitable. As a result, a shortage of rental housing has occurred in the real estate market, exacerbating supply-demand imbalances. Finding jeonse (long-term lease) units has become as difficult as finding a needle in a haystack.

This is not a story about Korea. It is the state of the Venezuelan real estate market about ten years ago. It strangely resembles Korea's current situation. This is because the government is following the same path as Venezuela, which has already experienced failure due to anti-market real estate policies.

In fact, various real estate-related communities have coined the term "Daenezuela," a combination of Korea and Venezuela.

Markets and experts are also raising warnings by linking the government's real estate policies to those implemented in Venezuela since the mid-2000s.

Most of the recently strengthened real estate regulations in Korea resemble those introduced and failed in Venezuela about ten years ago.

According to a report from the Korea-Venezuela Economic Cooperation Center, the Venezuelan government implemented a rent freeze for nine years starting in 2003. Even afterward, the Rent Inspection Office set rents based on area.

This is evaluated as similar to the recently implemented Jeonse and monthly rent ceiling system and the likely introduction of a standard rent system. In 2011, the Venezuelan government introduced a law prohibiting arbitrary eviction, preventing landlords from forcing tenants to leave before finding new housing. This is analyzed as similar to the lease renewal request system, which has been identified as a major cause of recent jeonse price surges.

It does not end there. The real estate supervisory agency directly mentioned by President Moon Jae-in is also comparable only to Venezuela's Fair Price Supervision Agency overseas. This agency manages the prices of all essential goods and is based on a socialist economy. It is similar in that the government directly strengthens price controls related to real estate, including rent.

However, Venezuela's policies ended in a major failure. This agency, which monitored and supervised prices of all goods including housing, caused a reaction against anti-market regulations, forming a "rental black market" that instead led to skyrocketing housing prices.

The Korea-Venezuela Economic Cooperation Center's report pointed out that as of 2013, "real estate prices were rising by 16% every month," and "although the policy was implemented to help the extremely poor, the poorest who could not afford to buy houses suffered the most."

Recently, Korea's jeonse and monthly rent market is becoming unstable like Venezuela's about ten years ago. As a side effect of the initial implementation of the three lease laws, Seoul apartment jeonse prices have risen for 59 consecutive weeks until last week and show no signs of falling.

According to the Korea Appraisal Board, prices rose from 0.04% in the first week of June to 0.08% (June 3-4 weeks), 0.10% (June 5th week to July 1st week), 0.13% (July 2nd week), 0.14% (July 4th week), and 0.17% (August 1st week).

With the new lease law extending the jeonse contract period to four years and limiting deposit increases to within 5% upon renewal, landlords are raising jeonse prices in new contracts, and tenants guaranteed four years of residence are reluctant to move out, reducing supply and causing a jeonse shortage.

There are also criticisms that a Venezuelan-style real estate supervisory agency does not fit Korea's market-based economy.

Venezuela, which experienced failure due to anti-market policies, should be a cautionary example, not a model to follow. If the current real estate policy direction continues, the government will not escape ridicule as "Daenezuela."

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