[11·19 Jeonse Measures] Abandoned Empty Houses and Closed Hotels Supplied as Jeonse... "Clear Limits"

Government Announces Measures After Long Delay, but Market Remains 'Cold'
Insufficient Supply Plan for 'Apartments', the Epicenter of Jeonse Crisis
Overlaps with Previously Announced Quantities in Earlier Measures

[Asia Economy Reporters Inho Yoo, Mune Won] 'Long-neglected vacant houses, closed hotels, public rental housing that no one hopes for.' This is the cold criticism from the market regarding the government's long-awaited jeonse (key money deposit lease) measures.

Regarding the 'Support Plan for Housing Stability for Low-income and Middle-class' announced by the government on the 19th, the market evaluates that it did not exceed the expected level even before the announcement. Although the supply volume over two years exceeds 110,000 households, the apartment market, the epicenter of the jeonse crisis, is excluded, and most of the supply consists of small-scale row houses, multi-family, or multi-unit houses.

It is positive that the supply has shifted from monthly rent-centered leases to expanding 'jeonse'-centered supply, but the dominant analysis is that it is difficult to meet the location and quality expectations of middle-class demanders. The main points of this measure are summarized below.

Vacant public rental housing to be offered as jeonse

The government has decided to temporarily change the concept of vacancy in public rental housing until 2022 to resolve it more actively. Currently, public rental housing is classified as vacant if unoccupied for six months, but this will be shortened to three months. Currently, there are 39,100 public rental houses nationwide that have been vacant for more than three months.

Among these, 16,000 are in the metropolitan area, and 4,900 are in Seoul. According to the Ministry of Land, Infrastructure and Transport, the competent authority, even in Seoul's Gangnam area, there are houses vacant for more than three months: 198 in Gangnam-gu, 263 in Songpa-gu, and 356 in Gangdong-gu.

The Ministry of Land, Infrastructure and Transport plans to convert these vacancies into jeonse leases by the end of the year and remove income and asset criteria. If you are a non-homeowner, you will be eligible to move in.

For purchase rental housing, applicants will be recruited without distinguishing types such as general, newlywed, or youth. If competition is high, income levels will be considered to prioritize low-income applicants. The basic residence period is four years, and if there are no waiting applicants who meet the existing move-in criteria afterward, residents can extend their stay for an additional two years.

'Public Jeonse' supplied without income criteria... below 90% of market price

A new concept of public rental housing called 'Public Jeonse' will also be introduced. The plan is to supply 18,000 households nationwide by 2022. The metropolitan area supply is 13,000 households, including 5,000 in Seoul. Existing purchase rental or public-supported private rental housing has been supplied in the form of monthly rent, but this will be offered as jeonse.

Korea Land and Housing Corporation (LH) and private construction companies will secure supply mainly through purchase agreement methods, pre-contracting for multi-family houses or officetels, while also continuing the purchase type that buys existing houses.

This differs from the current jeonse rental system, where applicants find existing houses and LH signs a jeonse contract and subleases them. Public Jeonse will be supplied by lottery to non-homeowners without income criteria. Residents can live for a basic four years plus an additional two years, paying a deposit below 90% of the market price.

Currently, the maximum purchase price for housing is 300 million KRW, but for Public Jeonse, it will be raised to 600 million KRW in Seoul, 400 million KRW in the metropolitan area, and 350 million KRW in other regions to secure better-quality housing and increase incentives for the private sector.

Newly built houses will also be purchased and offered as jeonse

The Ministry of Land, Infrastructure and Transport plans to supply 44,000 newly built public rental houses nationwide by 2022 through purchase agreements, separate from Public Jeonse. In 2021, 21,000 households will be supplied, and in 2022, 23,000 households. Among these, 33,000 will be supplied in the metropolitan area, with 20,000 in Seoul.

Purchase agreement houses will be supplied as jeonse-type leases, allowing residents to convert up to 80% of the rent into a deposit according to their preference.

However, experts view this measure as unlikely to be effective. They argue it is a patchwork solution that does not acknowledge the increase in jeonse demand caused by suppressing sales demand, which is the essence of the jeonse crisis.

Researcher Yoonkyung Heo of the Korea Research Institute for Construction Industry pointed out, "The limitation is clear as the supply focuses on non-apartments rather than apartments, which are the core of the jeonse crisis," and added, "Although it is said to be 114,000 households, this overlaps with the volume announced in the 8.4 measures, and only 29,500 households are newly converted to jeonse."

30-pyeong scale rental housing will also be introduced

Minister of Land, Infrastructure and Transport Kim Hyun-mi is announcing support measures for housing stability for low-income and middle-class citizens at the government Seoul office briefing room on the 19th. (Photo by Yonhap News)

The government also announced plans to improve the quality of public rental housing and relax income criteria so that middle-class jeonse demand can shift from the private sector to public rental housing. Starting next year, 30-pyeong scale public rental housing will begin construction, expanding to 63,000 households by 2025, and thereafter steadily supplying 20,000 households annually.

The income requirement for integrated-type public rental housing will be expanded from 130% to 150% of the median income, extending the eligible residents to some middle-class households. The housing area limit will also be expanded from 60㎡ to 85㎡, allowing households that previously avoided public rental housing due to small size to move in. Integrated-type rental housing allows residents who meet income and asset criteria to live for up to 30 years at rent below surrounding market prices.

However, since supply takes at least several years, it is difficult to immediately resolve the jeonse crisis, and there are many concerns that the massive budget input could worsen LH's financial structure. In fact, introducing medium-sized houses of 60~85㎡ will require about 11 billion KRW (about 5 billion KRW in equity investment) next year, and about 730 billion KRW (about 360 billion KRW in equity investment) by 2025.

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