Kim Hyun-mi "Jeonse Crisis Due to Structural Factors... Only 3% Hotel Conversions" [11·19 Jeonse Measures]

Government's 24th Real Estate Policy Announcement
Kim Hyun-mi Apologizes Saying "Sorry" in Briefing
Low Interest Rates and Household Fragmentation Cited as Causes of Jeonse Crisis
Regarding Hotel Remodeling Controversy, Says "Evaluation is Good"

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)

[Asia Economy Reporter Moon Jiwon] Kim Hyun-mi, Minister of Land, Infrastructure and Transport, recently apologized for the spreading Jeonse (long-term lease) crisis, saying she was "sorry." However, she repeatedly emphasized that the main causes of the Jeonse crisis are structural factors such as low interest rates and household segmentation rather than the new Lease Protection Act. In response to criticism that supplying closed hotels as Jeonse housing would not effectively resolve the crisis, she defended the policy as "well-evaluated."

At the briefing on "Support Measures for Housing Stability for Low-income and Middle-class Households" held on the 19th at the Seoul Government Complex, Minister Kim explained, "Despite efforts, the Jeonse price increase trend has continued since the second half of last year, causing recent instability in the Jeonse market," adding, "The recent Jeonse issue is the result of a complex interplay of macroeconomic conditions, household segmentation, and measures to stabilize the sales market."

This reiterated the existing position that the Jeonse crisis expanded as many tenant households sought Jeonse due to the long-standing low interest rate environment rather than the new Lease Protection Act, which was implemented at the end of July. However, Minister Kim acknowledged some responsibility, stating, "While the three Lease Protection Acts and the strengthening of residence obligations have greatly helped protect tenants, they have also created difficulties for new demand entrants."

Regarding the inclusion of a plan to supply closed hotels as Jeonse housing in the current measures, she cautioned against overinterpretation, saying, "It accounts for only 2-3% of the total volume." She added, "Seoul City is currently carrying out the project and is well aware of the issues. Soon, you will be able to see very high-quality housing provided at affordable rents."

Below are the main Q&A highlights from the briefing:

- Regarding the introduction of new public Jeonse housing, it was mentioned that it will be supplied at 90% or less of market prices, but since monthly rent prices have already risen significantly, this level might still be difficult for citizens to afford.

▲(Minister Kim Hyun-mi) We will manage it to be at an appropriate level.

- Does "appropriate level" mean it can be set even lower than 90% of market prices?

▲(Minister Kim Hyun-mi) Yes. We will make it possible.

- You said interest rates are the biggest problem in this Jeonse crisis, but there are no regulations on Jeonse loan restrictions in this measure. The financial sector argues that Jeonse loans should be regulated like sales loans. Was this discussed during the review of the measures?

▲(Minister Kim Hyun-mi) The Ministry of Land cannot decide on Jeonse loan matters. There were various discussions, including concerns about the difficulties faced by low-income people who cannot secure funds amid rising Jeonse prices. This measure focuses more on supplying volume than on financial regulations.

- The supply plan mostly involves purchase agreements and is expected to be in villa-type housing, but demand is high for apartments. How much apartment supply is planned? Also, even if the completion schedule is moved up to the first half of next year, the total supply volume does not change, so is the market stabilization effect significant?

▲(Minister Kim Hyun-mi) Advancing the supply schedule does not apply to Jeonse volume. You can see this in the distributed materials' table. To build apartments, permits should have been completed about five years ago. Apartment construction takes an average of 30 months, so there are limitations.

For the purchase Jeonse this time, the purchase price was raised to 600 million KRW. Since prices have increased for multi-family houses, row houses, and officetels as well, very high-quality housing will be supplied. This can substitute for apartment demand. When we talk about total housing supply, we do not only mean apartments. With this announcement, we will supply an additional 114,000 households, making 270,000 households in the metropolitan area and 82,000 in Seoul, with increases of over 50,000 in the metropolitan area and over 10,000 in Seoul.

- Lee Nak-yeon, leader of the Democratic Party, mentioned 'hotel remodeling.' Could you explain in detail?

▲(Minister Kim Hyun-mi) Hotel remodeling is a very small part of our policy, but I was surprised that the policy was portrayed as almost focused on hotel remodeling. The supply volume from remodeling non-residential vacant buildings is 5,400 units in Seoul, with only some being hotels. Overall, it accounts for only 2-3%.

Remodeling hotels is well-received in Europe and other places. Seoul City is also conducting the project and is well aware of the issues. Since the project has limitations, LH (Korea Land & Housing Corporation) is considering direct implementation, which you will see soon. You will be able to confirm very high-quality housing provided at affordable rents.

▲(Kim Hak-jin, 2nd Deputy Mayor of Seoul) There seems to be much interest in changing the use of hotels and non-residential buildings. The hotel volume in this measure is very small. From our perspective, deregulation of private use changes is already underway. Currently, the vacancy rate of downtown officetels is over 10%, and hotels exceed 60%. The annual use changes in Seoul converting non-residential to residential amount to about 1,000 households. There is room to increase volume by further supporting private use changes. Seoul City will actively support these efforts.

- There is a plan to push for additional land allocation in housing sites. Does this refer to the 4th new town announcement? Public rental housing and public Jeonse housing have a total of 6 years (4+2 years). What are the plans to manage Jeonse demand that will be released into the market after 6 years?

▲(Kim Heung-jin, Director of Housing and Land Division, Ministry of Land) The Jeonse crisis is also present in local areas, so we plan to designate additional land in areas nationwide, including metropolitan cities, where land development is needed. We are not considering large-scale land development like new towns. We did not discuss deregulation related to reconstruction and redevelopment this time. Public rental housing allows a maximum residence of 6 years, and supply is expected to return to normal levels after 2023. The maximum residence period is limited to 6 years.

- Where are the six locations for 4,000 high-quality lifelong housing units? You mentioned supplying 49,000 units by the first half of the year; please provide details.

▲(Director Kim Heung-jin) We will distribute a press reference material on the six locations for high-quality lifelong housing. Until now, public rental housing was supplied under 60㎡, but we plan to supply units between 60 and 85㎡. Regarding high-quality lifelong housing, we plan to supply 63,000 units by 2025. For purchase rental housing, about 2,000 units annually will be supplied in the 60-85㎡ range.

- Regarding designation of regulated areas, when will the Housing Policy Deliberation Committee meet? What about other areas like Nam-gu, Ulsan?

▲(Director Kim Heung-jin) The committee is currently conducting a written review and will designate areas as soon as possible after completion. Although price increases are high in Ulsan and other areas, considering the overall market position and the possibility of rapid price rises, these areas were not included this time.

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