Hong Nam-ki: "Lease 3 Acts Benefit Majority of Tenants... Investigation of Disruptive Acts and Tax Evasion Analysis" (Update)

The 26th Real Estate Market Inspection Meeting of Relevant Ministers

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, is speaking at the '26th Real Estate Market Inspection Meeting of Related Ministers' held at the Government Seoul Office on the 21st. 2021.7.21 [Image source=Yonhap News]

[Sejong=Asia Economy Reporter Son Seonhee] Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, stated on the 21st that "it has been confirmed that the majority of tenants have been able to benefit from the implementation of the so-called 'Lease 3 Acts,' which marks its first anniversary at the end of this month."

On the morning of the same day, Hong presided over the 26th Real Estate Market Inspection Meeting at the Government Seoul Office and said, "In the case of the top 100 apartments in Seoul, the lease renewal rate increased from just over half (57.2%) before the implementation of the 3 Acts to about 8 out of 10 units (77.7%) after implementation." He added, "The average residence period of tenants also increased from 3.5 years before the implementation of the 3 Acts to about 5 years after, indicating a significant improvement in tenants' housing stability."

The Lease 3 Acts is a collective term for the 'Lease Reporting System, Rent Ceiling System, and Contract Renewal Request Right System.' Among these, the Rent Ceiling System and Contract Renewal Request Right System were implemented on July 31 last year and will soon mark their first anniversary. The Lease Reporting System has been in effect since June 1.

Hong said, "An analysis of the reporting data, which allows verification of whether the contract renewal request right was exercised, following the introduction of the Lease Reporting System in June, showed that 63.4% of renewal contracts actually used the contract renewal request right granted by law." He added, "Due to the application of the Rent Ceiling System, 76.5% of renewal contracts were concluded with a rent increase rate of 5% or less."

He particularly evaluated, "The Lease Reporting System has greatly enhanced the transparency of the lease market by enabling confirmation of lease transaction details such as whether a contract is new or renewed, whether the renewal request right was used, and the rate of rent increase or decrease, which could not be identified with the previous fixed-date system." He also added, "It is expected that the accumulation of information will further enhance tenants' bargaining power regarding lease contract prices in the future."

Hong's positive evaluation of the Lease 3 Acts somewhat contrasts with the market's reaction. Since the introduction of the Lease 3 Acts, the conversion from jeonse (long-term deposit lease) to monthly rent has accelerated, and jeonse listings have sharply decreased, causing considerable dissatisfaction in the market. Regarding this, Hong said, "In Seoul, considering statistics showing that recent jeonse transaction volumes exceed average levels, it is necessary to observe the market and effects a little longer."

He continued, "In the case of new contracts rather than renewals under the Lease 3 Acts, there have been some price instabilities triggered by temporary relocation demand in the four Gangnam districts recently, and it is true that some uncertainties in the contract process existed as specific rights related to lease contracts were being formed and established through precedents. However, the effects of the Lease 3 Acts and the situation of the jeonse and monthly rent market should be judged by also considering the larger proportion of renewal contracts, which are not outwardly visible."

Regarding recent trends in the Seoul and metropolitan housing markets, Hong analyzed, "Since the end of last month, excess demand has slightly eased for two consecutive weeks." He emphasized, "Domestic research institutions and the Bank of Korea have raised concerns about the possibility of housing price overvaluation and the impact of housing price adjustments. To resolve market uncertainties and control expectations, we will consistently pursue the policy direction of 'expanding housing supply' as the top priority, along with 'protecting actual demand + strictly cracking down on market disturbances.'"

Meanwhile, the government is conducting crackdowns on real estate market disturbances and announced that it has detected for the first time actual cases of market manipulation through 'false contract reports' that have frequently occurred since early this year to inflate actual transaction prices. Cases detected include licensed real estate agents raising prices through family transactions and then brokering to third parties, and sales agency employees inflating prices by falsely reporting internal transactions of company-owned real estate and selling at high prices.

Regarding the detected market manipulation, Hong warned, "We will promptly implement follow-up measures such as criminal investigations, tax evasion analysis, and fines," and added, "The government plans to conduct year-round, continuous, and strong crackdowns on the four major types of real estate market disturbances so that such acts can no longer take root."

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