Loan Reduction and Introduction of Win-Win Landlord System... What Are the Real Estate System Changes This Year?

[Asia Economy Reporter Kim Min-young] Starting this year, new loan regulation measures such as the strengthening of the Debt Service Ratio (DSR) and new systems and regulations in tax areas including capital gains tax and inheritance tax will be introduced. Especially with the presidential election scheduled for March this year, presidential candidates from various camps are unveiling real estate-related pledges one after another, drawing attention to the changes these will bring to the market. Unlike last year, which saw many changes in subscription and tax areas, this year has major events such as the presidential and local elections planned, so we have summarized the newly introduced or amended and implemented real estate systems.

◆ Establishing a repayment ability-centered loan screening practice with the phased implementation of borrower-unit DSR Stage 2

According to the real estate industry on the 2nd, from this month, if the total loan amount including mortgage loans, credit loans, and card loans exceeds 200 million KRW, the DSR Stage 2 loan regulation (40% for banks) will apply. The DSR standard for the secondary financial sector, which was 60%, will also be lowered to 50%. From July, DSR regulations will apply even if the total loan amount exceeds only 100 million KRW. As the loanable amount decreases, it is expected to affect housing purchase sentiment.

◆ Capital gains tax adjustments for housing subscription rights and commercial-residential buildings

The scope of redevelopment projects where members can acquire housing subscription rights and the scope of redevelopment projects eligible for 1-house 1-property capital gains tax exemption when transferring a house acquired for residence during the project period will be expanded to include ‘Autonomous Housing Redevelopment Projects,’ ‘Street Housing Redevelopment Projects,’ and ‘Small-scale Redevelopment Projects.’ When transferring a member’s housing subscription right, the capital gains tax exemption will only apply if the person does not own other houses, housing subscription rights, or pre-sale rights.

Also, until last year, if the housing area was larger than the commercial area, the entire property was recognized as housing and thus eligible for the 1-house 1-property capital gains tax exemption. However, starting this year, when disposing of high-priced commercial-residential buildings exceeding 1.2 billion KRW, only the housing portion will be exempt from tax regardless of area, while the commercial portion will be subject to taxation. For commercial-residential buildings priced at 1.2 billion KRW or less, the previous exemption rules will continue to apply.

◆ Expansion of inheritance tax deduction targets and extension of installment payment period

The scope of heirs eligible for a full deduction (up to 600 million KRW) of the inherited housing value when living together with the decedent in the same house for more than 10 years was previously limited to direct descendants but will be expanded to include spouses of direct descendants starting this year. To ease the tax burden on heirs, the installment payment period, which was previously allowed up to 5 years, will be extended to 10 years.

◆ Strengthening taxation on unauthorized residential buildings and unregistered properties

If the area used for residential purposes without permission or occupancy approval accounts for 50% or more of the total building area, the entire building will not be considered a house, and the associated land will be regarded as land subject to comprehensive taxation. Additionally, if taxable properties are not registered or differ from the registration status in land or building registers, property tax will be imposed based on the actual status.

◆ Deregistration of rental business operators not enrolled in guarantee insurance

To protect tenants, local government heads will be able to deregister rental business operators who do not subscribe to guarantee insurance ex officio. Guarantee companies will submit guarantee subscription and cancellation data to local government heads to monitor and manage rental business operators’ guarantee subscription status. Furthermore, operators not enrolled in guarantee insurance will be fined up to 10% of the rental deposit (with a maximum of 30 million KRW) to enhance the effectiveness of penalties.

◆ Strengthening registration management for foreign rental business operators

From the 15th of this month, foreigners registering as housing rental business operators must submit a report along with a certificate of foreigner registration. The report must include the foreigner registration number, nationality, residence status, and duration of stay. This is to verify at the registration application stage whether foreigners have the appropriate residence status to prevent them from engaging in real estate rental business through loopholes.

◆ Changing the multi-child criteria for integrated public rental housing to two children

The multi-child household support criteria for integrated public rental housing will be expanded from three children to two children. Integrated public rental housing combines existing types such as permanent rental and Happy Housing. With the expanded multi-child criteria, starting this year, two small permanent rental houses will be green remodeled and integrated to supply to households with two or more children. For purchased rental housing, the deposit will be fully or up to 50% relaxed, and jeonse (long-term deposit lease) rent will be reduced according to the number of children.

◆ Relaxation of floor area ratio for small-scale public reconstruction

Incentives for small-scale reconstruction projects improving residential environments of aged housing complexes (apartments, row houses, etc.) with fewer than 200 households in urban areas will be strengthened to enable rapid housing supply. Building regulations such as floor area ratio, height limits, and landscaping standards will be relaxed on the condition of donating public rental housing, and if necessary, the project implementation area can be expanded by up to 20% to include adjacent areas.

Additionally, from the 11th of next month, the designation criteria for speculative overheating zones and regulated areas will be changed to be determined by presidential decree. A co-living landlord system will also be introduced, recognizing one year of actual residence for capital gains tax exemption if the rental contract is maintained for two years.

From March, a new ‘shared dormitory’ use will be established to allow public housing providers or private rental businesses to offer large-scale shared housing services to the general public. Shared dormitories must have at least 20 rooms, with 1 to 3 occupants per room.

In June, a cap on development profits for private participants in public-private joint urban development projects will be introduced. Alongside this, the 'Youth Monthly Rent Support Project,' which provides 200,000 KRW monthly rent support for one year to housing-insecure youth, will be implemented in the first half of this year. Also, in July, a post-verification system for apartment floor noise will be introduced.

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