"Both Landlords and Tenants Are Victims"... Aftermath of the Complete Repeal of Reconstruction Residency Regulations

Landlord says tenant doesn't have to move out,
but worries about compensation after evicting tenant for new move-in
Tenant says they don't have to leave,
but already paid deposit for new Jeonse house
Frustrated over millions lost in sunk costs

[Image source=Yonhap News]

[Asia Economy Reporter Onyu Lim] #A, who owns an apartment in the new town area of Mok-dong, Yangcheon-gu, Seoul, is facing a difficult situation due to the cancellation of the ‘mandatory two-year residence requirement for reconstruction association members.’ A, who lives in Bucheon, Gyeonggi Province, was planning to evict tenant B reluctantly and move into the old Mok-dong apartment to secure the association member’s move-in rights, but the government’s policy withdrawal has put A in a tough spot. The tenant has already signed a contract for another rental house. A said, "I decided to evict the tenant on the premise of moving in, so now I can’t even rent it out again," adding, "The house is small and old, and there are many inconveniences like the parking lot, so I’m worried."

According to the real estate industry on the 14th, as the government and ruling party withdrew the regulation requiring reconstruction association members to reside for two years, cases of damage are emerging one after another. Homeowners like A, who refused to renew lease contracts for actual residence, are now worried about compensating damages when signing new lease contracts, while homeowners who evicted tenants and moved in are angry about the remodeling and moving costs already spent. According to the new Lease Protection Act, if a landlord refuses a tenant’s request to renew the contract for actual residence reasons and accepts a new tenant, the landlord must compensate the highest amount among the following: △ three months’ rent paid by the existing tenant △ two years’ worth of the difference between the rent received from the new tenant and the rent previously received from the existing tenant △ damages incurred by the existing tenant.

Tenants are also suffering damages. Especially tenants who were almost forced out of their homes due to the residence requirement find themselves in a frustrating situation. They recall the struggle to prepare for the skyrocketing rental prices after the new Lease Protection Act. For example, the rent for an 84㎡ (exclusive area) unit in Eunma Apartment, Daechi-dong, a representative reconstruction promotion complex in Gangnam, Seoul, soared from 730 million won before the June 17 measures proposed last year to 1 billion won currently.

The situation of tenants caught between the new lease contract and the withdrawal of the residence requirement regulation is even more serious. Tenant B, living in Eunma Apartment, recently found a new rental home, but the landlord C suddenly said, "You can stay longer," leaving B in a dilemma. C said, "I have already paid a deposit of 60 million won," and expressed frustration, "Who will compensate for this sunk cost?"

Critics point out that unrealistic regulations proposed under the pretext of speculation prevention were arbitrarily introduced and then scrapped, causing only landlords and tenants who acted in anticipation of enforcement to suffer unnecessary losses. A representative from D Real Estate Agency in Daechi-dong said, "There are quite a few tenants who reluctantly left due to concerns about their children’s education," adding, "This is not child’s play, and with the residence requirement regulation being nullified, inquiries have surged in just a few days."

While the damage to landlords and tenants caused by the government and ruling party’s inconsistent policies is severe, there is also a view that this regulation withdrawal could be positive for Seoul’s rental market, which is suffering from a shortage of listings. Ham Young-jin, head of the Zigbang Big Data Lab, said, "The withdrawal of the residence requirement may not lower rental prices, but it is meaningful in that it reduces market disruption factors amid ongoing rental insecurity caused by the conversion of rentals to monthly leases and a decrease in move-in supply." However, concerns remain that this regulation withdrawal could fuel price increases in reconstruction complexes. Park Won-gap, senior real estate specialist at KB Kookmin Bank, said, "Since move-in rights can be obtained without residing for two years, gap investments involving rentals may increase in areas not designated as land transaction permission zones, potentially stimulating housing prices."

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