Is Maintaining Rent Evil and Lowering It Good?… Controversy Ignited Over the 'Fairness Debate'

President Moon's 'Fair Rent Theory' Draws Complaints from Livelihood-Type Commercial Landlords
Ruling Party Unveils Rent Freeze Bill...Some Fear 'Market Order Collapse'

[Image source=Yonhap News]

[Asia Economy Reporters Inho Yoo, Onyu Lim] "With a 5% cap and the added right to reduce rent, now you're telling us not to collect rent at all? Are landlords 'villains'?" This is the angry voice of commercial landlords.

On the 14th, as President Moon Jae-in mentioned the so-called 'fair rent theory,' voices of dissatisfaction and concern erupted among livelihood-type commercial landlords. They argue that the government and ruling party are using the prolonged COVID-19 pandemic as an excuse to label store owners as the source of 'unfairness,' thereby stirring up another layer of social conflict. Experts warn that the fair rent theory itself could potentially disrupt market order.

◆ Amid confusion over COVID-19 measures, controversy over the 'Rent Freeze Act' = 15 According to industry sources, the controversy was sparked by President Moon and Lee Nak-yeon, leader of the Democratic Party of Korea, discussing fair rent. President Moon's remarks at the Blue House senior secretaries and advisors meeting the day before, stating, "It is painfully questionable whether it is fair for tenants to bear the burden of rent despite a sharp drop in sales when business is restricted or prohibited according to government quarantine guidelines," and Lee's statement at the Democratic Party's supreme council meeting, "Small business owners and self-employed are hanging at the edge of a cliff. Income has plummeted after COVID-19, but rent remains the same," were interpreted as signals that the government intends to intervene directly to control commercial rent.

Kim Tae-nyeon, floor leader of the Democratic Party, also said at the party's floor countermeasure meeting held at the National Assembly that day, "Although the public is suffering due to the spread of COVID-19, the pain and burden on tenants due to gathering bans and restrictions are somewhat significant," and added, "Social discussion and consensus are necessary to resolve rent conflicts."

Concerns are spreading in the market. There is speculation that following the forced passage of the revised Housing Lease Protection Act pushed by the ruling party, government, and Blue House in July, the Commercial Lease Protection Act may also be pushed through in a similar manner.

In fact, on the day President Moon and Lee mentioned the fair rent theory, Democratic Party lawmaker Lee Dong-joo introduced a bill to amend the Commercial Building Lease Protection Act, known as the 'Rent Freeze Act.' Article 11 of this law (right to request increase or decrease of rent) proposes establishing a 'special provision for rent due to infectious disease damage.' If a business is subject to a gathering ban due to an increase in social distancing levels, the landlord cannot collect rent during that period, and in the case of gathering restrictions, rent must be collected at half or less. Since landlords collecting rent in such cases may suffer losses, the bill also includes provisions allowing financial institutions to defer repayment of interest on secured loans.

◆ Maintaining rent is evil, reducing rent is good? = Experts warn that if the government forcibly intervenes in commercial rent, it will cause fairness issues and disrupt market order. While public institutions or landlords with financial leeway can voluntarily reduce or waive rent, forcing landlords who have invested for livelihood through loans to reduce or waive rent under the banner of fairness is excessive market intervention crossing the line. Professor Jang Young-soo of Korea University Law School emphasized, "It is not a problem if landlords voluntarily reduce rent, but if the government steps in to prohibit or restrict rent collection, it can be seen as a fundamental infringement on property rights."

There is also analysis that the side effects of strengthened real estate taxes and the 'three lease laws' regulating apartment investment will be repeated. Professor Lee Chang-moo of Hanyang University Department of Urban Engineering said, "It may be tolerated in extreme situations such as wartime, but if social recognition is not sufficiently supported, it will only cause various side effects like the three lease laws," and pointed out, "Ultimately, landlords are likely to raise rent again to recover losses once COVID-19 subsides."

◆ Rent plummets in vacant stores... landlords also at the cliff = With the prolonged COVID-19 crisis and amendments to the Commercial Lease Act, major commercial districts in Seoul are already on the brink of collapse. The investment yield on commercial properties, calculated by balancing holding costs and rental income, is also declining. According to the third quarter (July-September) commercial real estate survey by the Korea Real Estate Board, investment yields for collective commercial buildings, medium-to-large commercial buildings, and small-scale commercial buildings were only 1.15%, 1.14%, and 1.08%, respectively. These yields are barely enough to cover bank interest payments. Since the fourth quarter of last year, when yields were recorded at 1.7-1.4%, there has been a steady decline. Given this situation, vacancy rates in major commercial districts in Seoul are also severe. The vacancy rate for medium-to-large commercial buildings in Seoul in the third quarter was 8.5%, up from 7.9% in the second quarter. In Itaewon, the vacancy rate reached a staggering 24.9%.

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