[Ryu Taemin's Real Estate A to Z] The 'Land Lease Housing' Revived in Presidential Election Promises... Could It Be an Alternative for Housing Price Stability?

In December last year, a business agreement ceremony for the development of Anyang Beomgye Public Complex Building (Transit-Oriented Basic Housing) was held with the participation of Lee Jae-myung, Governor of Gyeonggi Province. (Photo by Asia Economy DB)

[Asia Economy Reporter Ryu Tae-min] Recently, the government and presidential candidates from both ruling and opposition parties have been competing to promote the expansion of ‘land leasehold housing’ supply as an alternative to stabilizing housing prices. Their ambition is to curb soaring housing prices by supplying homes at ‘half the sale price.’ However, since there have been no significant measures to address the previously pointed out problems and shortcomings of land leasehold housing, the market response has been lukewarm.

Affordable Sale Price Land Leasehold... A Frequent Promise in Housing Price Stabilization Pledges

Land leasehold housing is a type of housing where the land is publicly owned and only the building is sold. The sale price is lowered to about half that of regular housing, but a lease fee is charged for the land. Typically, residents can live there for 40 years up to a maximum of 80 years, and the lease fee can be further reduced if converted to a deposit.

Accordingly, the government and presidential candidates have been consecutively pledging to stabilize soaring real estate prices through the supply of land leasehold housing. Lee Jae-myung, Governor of Gyeonggi Province from the Democratic Party of Korea, announced a ‘basic housing sale type’ plan at the end of last year. This is a land leasehold method where houses are sold cheaply by adding only a small fee to the construction cost, while monthly land lease fees are collected from buyers.

Former Prosecutor General Yoon Seok-youl also proposed a pledge to supply ‘first homes near subway stations’ based on the land leasehold method, offering them to young people and households without homes at 30-50% cheaper than market prices. Hong Joon-pyo, a member of the People Power Party, promised to revitalize redevelopment in northern Seoul and supply ‘quota apartments’ through the land leasehold method by receiving partial land donations and offering them at half of half the market price.

During the Moon Jae-in administration, there was also consideration of supplying land leasehold housing instead of the originally planned 600 private sale units on the site of the former Seongdong Detention Center located in Songpa District. Additionally, a revision to the Housing Act mandating that land leasehold housing must be repurchased by LH upon sale passed the National Assembly plenary session in December last year.

High Lease Fee Burden and Blocked Asset Growth... Market Response ‘Cold’

Despite these characteristics, the market is not welcoming this. In fact, land leasehold housing is closer to a ‘monthly rent’ system where monthly land lease fees are paid rather than a ‘sale.’ Even amid skyrocketing housing prices, people seek to own homes not only for housing stability but also for asset accumulation. However, asset growth is difficult to expect with land leasehold housing. On top of that, the burden of land lease fees causes potential buyers to avoid it.

In reality, when land leasehold housing was first supplied in October 2007 in Bugok District, Gunpo City, Gyeonggi Province, it was largely undersubscribed in the first priority. The dominant evaluation was that the monthly land lease fee of 400,000 KRW was a heavy burden. Ultimately, 92.4% of the units remained unsold, and all of those houses were converted to general sale housing and resold.

There is also a long-term risk that asset value may actually decline. This is because building prices depreciate over time due to depreciation. Moreover, since the land is publicly owned, it is difficult to proceed with reconstruction according to residents’ wishes. A representative example is the Jung-sanshibeom Apartment in Yongsan District, Seoul, built in 1970 and supplied as land leasehold housing. The land and surrounding roads are owned separately by Seoul City and Yongsan District Office, so even after more than 50 years since completion, reconstruction projects have hardly progressed.

Meanwhile, there are criticisms that tenant protection policies for land leasehold housing are insufficient. This is because the Housing and Urban Guarantee Corporation (HUG) does not accept subscriptions for lease deposit guarantees for land leasehold housing. Tenants moving into land leasehold housing find it difficult to protect their jeonse (long-term deposit lease) prices. Lease deposit guarantee is a product where the guarantee institution pays the deposit on behalf of the landlord if the landlord fails to return it.

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