[Exclusive] Low Effectiveness of 'Good Landlord' Policy... Possibility of Direct Cost Sharing Through Financial Support

Small Business Association "Government Should Step In and Provide Direct Support for Rent Issues"

[Image source=Yonhap News]

[Asia Economy Reporter Park Cheol-eung] The government's rent support policy has focused on the 'Good Landlord' initiative, which relies on the goodwill of landlords (building owners). However, according to a survey released last month by the Korea Federation of Micro Enterprise Associations, 80.8% of respondents reported 'no change' in rent levels compared to the previous year, while only 5.5% said rents had been reduced. In contrast, 13.5% reported rent increases. The condition of offering a 50% tax deduction on the waived amount has not led to widespread voluntary participation, resulting in minimal practical effect.

On the 14th, President Moon Jae-in stated, "The question of whether it is truly fair for small business owners to bear the full burden of rent amid a sharp drop in sales is deeply painful to hear," which led to the Democratic Party's proposal of the so-called 'Rent Freeze Act.' Representative Lee Dong-joo, the bill’s main sponsor, said, "Landlords lack incentives to accept tenants' requests for rent reductions, and disputes ultimately have to go through mediation committees. More drastic measures are necessary." The bill’s core is to freeze rent for businesses subject to gathering bans and prohibit charging more than half the rent for businesses under gathering restrictions.

The intent is that the burden of COVID-19 damages should not be passed solely onto tenant small business owners. However, it has also sparked backlash over dividing landlords and tenants and concerns about how to compensate landlords for income losses.

The Democratic Party’s move to assess rent status through the National Tax Service reflects a commitment to creating more fundamental and effective rent support policies. By investigating the overall rent scale for sectors severely affected, such as those under gathering bans, the government plans to explore measures to further reduce corporate and income tax burdens on landlords or to cover part of the rent through public funds.

Ultimately, it comes down to funding. Even if the government accepts reduced tax revenue, deciding on separate direct fiscal support would require enormous funds. The currently available third round of disaster relief funds is estimated at 3 trillion won in secured budget, 500 billion won carried over from the second round of support, plus an additional 500 billion won from contingency funds. The basic plan is to provide about 1 million to 2 million won per self-employed person, similar to the second round. If a direct rent-sharing method through fiscal support is additionally adopted for a certain period, even limited to crisis-hit sectors, the funds will likely be insufficient. An additional supplementary budget (Chugyeong) early next year will be inevitable.

Self-employed business owners are strongly demanding support. The Korea Federation of Micro Enterprise Associations stated in a commentary the day before, "Australia introduced a ‘Mandatory Code of Conduct’ in April that reduces rent and offers tax benefits to landlords, and Canada has implemented a policy that reduces tenant rent burdens by 75%," urging, "The government should step in to directly support the rent issue, which is the most difficult problem for small business owners." Domestically, Incheon’s Ganghwa County amended an ordinance in March to support businesses with fewer than five employees by covering up to 50% of monthly store rent, capped at 500,000 won per month, for up to three months.

Park Hong-geun, the ruling party’s secretary of the National Assembly’s Budget and Accounts Special Committee, said, "It is premature to assume the escalation to social distancing level 3 and discuss supplementary budget formulation," adding, "Of course, if level 3 is implemented, a comprehensive review of support policies will be necessary. Currently, we are at an early stage of discussion on whether to add contingency funds to the third round of support, whether a supplementary budget is needed, and whether the government can decide on tax reductions." He added, "If tax reductions alone can alleviate landlords’ burdens to some extent, a separate budget may not be necessary."

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