[In Focus] Why You Should Pay Attention to Real Estate Leasing

Im Yu, former Executive Director of the Korea Financial Investment Association

"We will also consider expanding our business to include real estate leasing related to industries such as the Fourth Industrial Revolution and the environmental sector, so that we can play a greater role in these fields."

This was stated by Go Seung-beom, Chairman of the Financial Services Commission, who attended the CEOs' meeting of credit finance companies held last month. The capital industry, which urgently needs to develop new growth engines as the automobile (installment) leasing market has been encroached upon by the entry of banks and card companies, responded with applause. However, they believe it will take considerable time to practically apply this, such as through revisions to supervisory regulations. While the authorities’ attitude toward real estate leasing is changing and revisions to supervisory regulations are expected, the timing and extent are likely to fall short of expectations?this seems to be the exact situation.

When real estate leasing was first introduced in Korea in 2009, only "sale and leaseback" (a method where a financial company purchases real estate owned by a company and then leases it back to that company) was allowed, but the scope and targets were expanded with regulatory revisions in 2015. Despite the legal possibility of real estate leasing by capital companies, there has been not a single real estate lease transaction since 2009, largely because the supervisory regulation that "real estate leasing is only permitted for companies whose lease assets (excluding automobiles) account for 30% or more" has not been changed.

If this were the 1980s or 1990s, when most lease assets were equipment leases, the 30% rule would not have been an obstacle. However, with the demand for equipment leases sharply declining and loans and corporate finance filling that gap, the 30% rule is clearly a difficult hurdle to overcome. Then why has the authority, which surely knows that maintaining the 30% rule makes real estate leasing practically impossible, not changed the regulation until now? In my opinion, it is because of the dark shadow cast by the word "real estate" attached to real estate leasing. There is concern about the baseless criticism that "finance is leading real estate speculation." However, understanding is one thing, but honestly, I feel regret that instead of worrying about public opinion, they did not design products sophisticated enough to dispel market concerns.

The era when people rent real estate from leasing companies by paying usage fees (lease fees), just as they do with automobiles instead of owning them, is not far off. I believe the honor that automobile leasing has enjoyed will soon be transferred to real estate leasing. This is not just about the revival of the leasing industry, which is barely surviving except for automobile leasing, but also because leasing is the best way to remove the economic bubbles carried out under the name of desire. The wave of the Fourth Industrial Revolution, represented by artificial intelligence, the Internet of Things, autonomous vehicles, and big data, can only be overcome together with finance. Leasing is at the center of this. While past equipment leases were limited to servers and chargers, leasing in the Fourth Industrial Revolution era must be able to supply data centers and charging stations. Fourth Industrial Revolution facilities have characteristics that make it difficult to separate equipment and real estate, and since facility investments require huge amounts of money, real estate leasing is the most competitive financial method. Moreover, real estate leasing is said to reduce the risk of overinvestment and increase the efficiency of the national economy. Thus, the goals, directions, and purposiveness all urge the activation of real estate leasing. I urge that solutions to the 30% rule and tax issues (acquisition tax and capital gains tax) be prepared promptly.

If the end of leasing is real estate, then the final destination of real estate leasing is housing. There is no doubt that housing is the flower of real estate leasing, whether in terms of market size or handling difficulty. From the perspective of the essence of transactions?using without owning?current rental and leasing are no different, but unlike rental businesses that aim for both rental income and capital gains (real estate disposal profits), leasing companies have a comparative advantage in that they only expect lease fee income. Since supply shortages are among the causes of the current real estate crisis and the supply of competitive rental housing plays a major role in real estate policy, discussions to expand real estate leasing targets to housing should be conducted immediately. If it can reduce the government's fiscal burden while providing quality rental housing, and if it can fundamentally block the chain of rent increases, then why hesitate to introduce anything other than real estate leasing?

2022 marks the 50th anniversary of leasing being introduced in this land. The leasing industry, which once played an important role in equipment finance responsible for 25% of domestic private equipment investment, is sincerely hoped to make a leap forward as a key financial means to unblock the bottlenecks of the national economy.

Lim Yu, Former Executive Director of the Korea Federation of Credit Finance Companies

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