"Feeding Carrots and Beating with a Whip"... Rental Business Owners Protest the Abolition of Purchase Lease Program

Ruling Party Real Estate Special Committee Decides to Completely Ban New Registrations of Apartments and Non-Apartments
Existing Operators' Qualifications to Be Revoked After Lease Period Ends
Concerns Raised That Burden May Ultimately Be Passed on to Tenants

The Democratic Party of Korea has decided to completely abolish the purchase lease system, which involves buying villas and officetels to rent them out, under the housing rental business operator system.
[Image source=Yonhap News]

[Asia Economy Reporter Onyu Lim] The Democratic Party of Korea has decided to abolish the purchase lease system, where villa and officetel units are bought and rented out, under the housing lease business operator system. There is strong backlash from lease business operators who say "policy trust has collapsed" due to the government's and ruling party's inconsistent actions since 2017, when they encouraged registration of lease business operators through various tax benefits. They plan to submit a collective petition to the Constitutional Court urging an unconstitutional ruling. Ultimately, concerns are rising that tenants will bear the brunt of the damage due to refusal to renew contracts and rising jeonse and monthly rent prices.

According to the Democratic Party's Special Committee on Real Estate on the 30th, new registrations of purchase lease business operators will be completely banned regardless of housing type. The government had already abolished the lease business operator system for apartments in the July 10th measures last year. This will be expanded to non-apartment types such as officetels, row houses, multi-family houses, detached houses, and multi-unit houses. Existing operators will lose their qualifications once their lease period ends.

In 2017, the government encouraged registration of lease business operators through the December 13th measures to alleviate tenant housing instability and to legalize hidden rental income. At that time, various tax benefits were provided, including expanded reductions in local taxes and rental income tax, exclusion from capital gains tax surcharges, and exclusion from comprehensive real estate tax aggregation. However, since 2018, the ruling party began to reverse the policy as lease business operators were identified as one of the causes of the rapid rise in apartment prices. Going forward, the benefit of exclusion from comprehensive real estate tax aggregation will only apply during the remaining mandatory lease period, and once the mandatory lease period ends, normal taxation will resume without additional extensions.

Additionally, to encourage rental housing to be listed on the market, the plan is to require that the house be disposed of within six months after the lease business operator status is revoked in order to receive the capital gains tax surcharge exclusion benefit. Previously, this benefit could be enjoyed regardless of the period.

Lease business operators are strongly opposing the policy reversals by the government and ruling party. Sung Chang-yeop, president of the Korea Housing Lease Association, said, "Since 2018, the government and ruling party have repeatedly denied the policies they themselves promoted, trying to undermine policy credibility on their own." The association plans to hold a 'National Petition Press Conference for Lease Business Operators' Constitutional Appeal' in front of the Constitutional Court in Jung-gu, Seoul on the 1st of next month and submit a collective petition to the Constitutional Court. President Sung said, "If the ruling party forcibly enacts such unconstitutional legislation again, we will unite the will of the 520,000 registered lease business operators and housing lessors to pursue an additional constitutional appeal."

The bigger problem is that innocent tenants may suffer due to these system changes. When a lease business operator sells a house to avoid capital gains tax surcharges, if the buyer wants to live in the house, the tenant cannot renew the contract. If less than six months remain on the contract period, the contract can be renewed, but there is a high possibility that rent will increase significantly afterward. Lease business operators have been subject to a 5% rent increase limit on new contracts, so the price of such properties was lower than the market price.

Ham Young-jin, head of the Zigbang Big Data Lab, said, "With the stock of public rental housing remaining around the OECD average, strengthening regulations on lease business operators inevitably leads to a reduction in operations," adding, "Market monitoring must continue to prevent instability in the lease market."

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