Strengthening Support for Private Operators of Public Jeonse Housing... Loan Guarantees Up to 90%

Full-Scale Implementation of Public Land Sale Preferences and Tax Benefits Begins

[Asia Economy Reporter Kangwook Cho] Support for private developers of public jeonse housing will be strengthened. Loans will be guaranteed for up to 90% of the project cost, and preferential treatment for public land sales and tax benefits will also be provided.

The Ministry of Land, Infrastructure and Transport announced on the 8th that it will strengthen support for private developers to quickly supply the newly introduced public jeonse housing to the market this year.

'Public jeonse housing' is a new housing type where LH and SH purchase newly built officetels and multi-family housing, which can be quickly constructed in urban areas, through new construction purchase agreements, and supply them as 'jeonse' to middle-income households. Housing with three or more rooms (exclusive area 50~85㎡) will be purchased and supplied for 3-4 person households, and tenants will be selected by lottery among actual demanders without housing (no income requirements). They can live with peace of mind for up to 6 years (4+2) at a jeonse deposit below 90% of the market price. This year, 9,000 units will be purchased, including 3,000 units in Seoul and 3,500 units in Gyeonggi and Incheon, and tenants will be recruited as soon as the buildings are completed.

The Ministry of Land will provide various benefits such as ▲special loan guarantee products, ▲preferential treatment for public land sales, and ▲tax benefits to help private developers secure quality sites in urban areas and expand the supply of newly built housing.

Urban Housing Special Guarantee Structure

Low-interest loan up to 90% of project cost 'Urban Housing Special Guarantee'

First, to reduce the developer's self-financing burden, a 'Urban Housing Special Guarantee' has been established that allows low-interest loans for up to 90% of the project cost.

Until now, private developers have only been able to borrow part of the land purchase cost at high interest rates above 5%, resulting in self-financing exceeding 60-70% of the project cost. Therefore, developers lacking equity capital found it difficult to participate in projects, and even if they did, high interest costs lowered profitability.

With the implementation of the Urban Housing Special Guarantee, private developers who sign purchase agreements to build public jeonse housing will be able to start projects by securing sites with only 10% of the project cost, and the remaining costs can be financed at low interest rates in the 3% range. The guarantee limit varies by region and housing size, ranging from a minimum of 70% to a maximum of 90% of the project cost. Developers who have signed public jeonse purchase agreements with LH or SH can apply for the guarantee, and actual loans are expected to be available from first-tier banks as early as the end of this month.

Priority supply of public land and bonus points based on private developer performance

In addition, private developers who supply many houses through purchase agreements in the metropolitan area will be given benefits such as priority supply and bonus points when public land is sold.

Accordingly, only developers who build 300 or more purchase agreement houses in the metropolitan area this year and next can apply for restricted lotteries (about 10% annually of lottery-supplied sites). When participating in design competitions, they can earn 60 points in the social contribution category (300 points). A new 'purchase agreement construction performance' item has been added to the 'social contribution plan evaluation (300 points)' out of 1,000 points total.

Also, when plots are supplied by lottery, applicants with first-priority subscription qualifications (3 years of 300 housing units construction performance based on permits + construction capability and housing construction business operator + no sanctions) who supply 40 or more purchase agreement houses in the metropolitan area can receive up to 4 points (out of 14 points, with 5 or more points required to apply).

When building purchase agreement houses in the metropolitan area, performance criteria are differentiated considering difficulty by region and exclusive area. For example, one unit of 50㎡ or more but less than 60㎡ in Gyeonggi and Incheon counts as one unit, houses 60㎡ or larger count as double, and houses built in Seoul count as double. For instance, supplying 20 units of 70㎡ houses in Songpa-gu, Seoul is recognized as 80 units, and supplying 30 units of 59㎡ houses in Gwacheon-si, Gyeonggi is recognized as 30 units.

Purchase agreement performance this year and next will be reflected in nationwide land and public housing district supply from next year to 2024. Performance is extinguished after one winning, and restricted lotteries (priority supply) provide up to two chances to win.

Capital gains tax reduction on land sales...relaxation of purchase housing restrictions

Along with this, to secure quality sites in urban areas and improve project feasibility, capital gains tax will be reduced for land sellers, and purchase housing restrictions will be eased.

When selling land to private developers who have signed purchase agreements, individuals can receive a 10% reduction in capital gains tax, and corporations can be exempted from the additional capital gains tax rate (10%).

For example, if land with a capital gain (taxable amount) of 2 billion KRW is sold, an individual would normally pay 800 million KRW in capital gains tax (40% rate), but selling to a purchase agreement developer reduces this by 10%, so they pay 720 million KRW. In the same case, a corporation would pay 400 million KRW in capital gains tax with a 10% rate plus an additional 10% rate, but selling to a purchase agreement developer reduces this by 10 percentage points, saving 200 million KRW. Additionally, through amendments to the Local Tax Special Act in the first half of the year, private developers who acquire land and build or acquire new houses under purchase agreements will receive a 10% reduction each in acquisition tax.

The scope of purchases will also be expanded. Previously, LH only purchased buildings where all units met public jeonse requirements (3 or more rooms, 50~85㎡), but going forward, buildings mixed with public jeonse housing and one- or two-room units will also be purchased. Accordingly, buildings that must have one- or two-room units on upper floors due to diagonal line and floor area ratio restrictions can also be supplied as public jeonse housing.

The Ministry of Land plans to hold a business briefing session on the 30th to encourage more private developers and landowners to participate in purchase agreement projects. Meanwhile, tenant recruitment for the first public jeonse housing (117 units in Anyang-si, Gyeonggi-do), which has completed construction and move-in preparations, will begin on the 19th. Winners will be announced at the end of May, and move-in will be possible from June.

Kim Hongmok, Director of Housing Welfare Policy at the Ministry of Land, said, "The newly introduced public jeonse housing will help alleviate housing insecurity for the middle class," and added, "In addition to public jeonse housing, we will continue to supply quality purchased rental housing where low-income households can live at less than half the market price."

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