Only Owning Buildings Excluding Land... Will Byeon Chang-heum's 'Land Lease Housing' Revive?

Land Lease Housing Failed Under Past Governments
Gunpo Faces Shortfall... Poor Location but Rent Burden
Seocho and Gangnam See House Prices Soar Amid 'Lotto Sale' Controversy
Byun Changhoom Emphasized Necessity Since Professor Days

[Asia Economy Reporter Moon Jiwon] With the nomination of former Korea Land and Housing Corporation (LH) President Byeon Changheum as Minister of Land, Infrastructure and Transport, signs of the revival of 'land leasehold housing' are emerging. Land leasehold housing is mentioned as a 'solution' that can increase housing supply in Seoul and the metropolitan area while preventing market overheating, but some predict its effectiveness will be limited due to strict restrictions on realizing capital gains.

According to the real estate industry on the 7th, land leasehold housing is practically classified as a failed policy of past governments. Starting with the Bugok district in Gunpo, Gyeonggi Province in October 2007 during the Roh Moo-hyun administration, 763 units of land leasehold housing were supplied in three districts including Seocho and Gangnam in Seoul, but supply stopped afterward as it fell short of expectations.

The reasons for the failure of land leasehold housing vary. In Gunpo, demand failed to attract interest and there was a large shortfall in first-priority applications. The Bugok district in Gunpo covers an area of 473,000㎡ with 2,848 households, smaller than new towns in the metropolitan area and lacking infrastructure. Despite the poor location, the land lease fee reached 400,000 KRW per month, which was considered a heavy burden.

On the other hand, land leasehold housing sold in Gangnam and Seocho, Seoul, failed to achieve policy effects for the opposite reason. The sale price there was only in the low 200 million KRW range, about one-quarter of the surrounding market price at the time, and the land lease fee was also low at 300,000 to 400,000 KRW. These complexes initially did not gain much popularity due to the lack of land ownership, but demand increased as prices surged after move-in. Except for the lack of land ownership, the apartment quality and location were very good. In fact, among buyers at the time, word spread that these were 'cost-effective apartments' because they were several hundred million KRW cheaper than nearby complexes while having decent locations.

When the five-year resale restriction ended in 2018, house prices rose to the 800 million KRW range, and now they have easily exceeded 1 billion KRW. However, the rapid price increase caused a side effect where those who purchased the units gained several hundred million KRW in capital gains instantly. Subsequently, the 'lottery sale' controversy arose again, and eventually, the 'Special Measures Act for the Promotion of Land Leasehold Housing Supply' enacted in 2009 was abolished in 2015, rendering the policy ineffective. The pilot project in Ok-gil district, Bucheon, was even canceled due to concerns over prolonged unsold units.

Minister of Land, Infrastructure and Transport nominee Byeon Chang-heum is arriving at the temporary office for nominees set up at the Seoul Regional Land Management Office in Gwacheon Government Complex, Gyeonggi Province on the 7th. (Photo by Yonhap News)

The possibility of future promotion is high. Candidate Byeon has argued since his time as a professor at Sejong University that land leasehold housing should be introduced to solve housing problems. This housing is based on the land public concept of American economist Henry George, which holds that land should be owned by the state rather than individuals, and Candidate Byeon's thinking aligns with this. The Democratic Party has already proposed a bill, and since the ruling party at the time, the Grand National Party, also pursued similar measures in 2009, there is a possibility of passage in the National Assembly.

The Democratic Party's bill includes restrictions such as extending the resale restriction period of land leasehold housing to 30 years and requiring the Korea Land and Housing Corporation to purchase the house if the owner wants to sell it, to prevent excessive capital gains by buyers when housing is supplied in good locations.

◆What is land leasehold housing? = It refers to housing where only the building is sold to residents, and the land is owned by the public and leased for a certain period. The sale price is set as the sum of the construction cost and the land cost, but since the land cost is excluded, it can be sold at a significantly lower price than the surrounding market price. However, residents must pay a separate lease fee for the land they rent.

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