Leasehold Act 2 Under Review... Ministry of Land and Ministry of Justice Launch Institutional Improvement TF

"Measures to Be Prepared for Normalizing the Rental Market"

Minister of Land, Infrastructure and Transport Won Hee-ryong is explaining real estate policy at the 'Kwanhun Club Debate' held at the Press Center in Jung-gu, Seoul on the 29th of last month. Photo by Kang Jin-hyung aymsdream@

The two rental laws, including the right to request contract renewal and the rent ceiling system for jeonse and monthly rent, are set to be reviewed. These laws, introduced in 2020, have been criticized for triggering instability in the jeonse and monthly rent market and stimulating apartment price increases.

The Ministry of Land, Infrastructure and Transport (MOLIT) and the Ministry of Justice announced on the 27th that they held the inaugural meeting of the "Housing Lease System Improvement Task Force (TF)" and decided to prepare improvement plans for the housing lease system through joint research projects and expert consultations. Both ministries jointly oversee the "Housing Lease Protection Act," which stipulates the two rental laws: the right to request contract renewal and the rent ceiling system.

The TF will be co-led by the MOLIT Housing Policy Officer and the Ministry of Justice Legal Review Officer. They plan to hold regular monthly meetings to share trends in the rental market and develop improvement plans based on an analysis of the effects and issues of the two rental laws. The TF will launch as a director-level meeting body but may be elevated to a vice minister-level meeting if the improvement plans become more concrete and legislative amendments proceed. Kim Young-han, MOLIT Housing Policy Officer, stated, "Fundamental stabilization of the rental market requires improvements to the rental system. We will carefully review various alternatives to develop improvement plans that can normalize market functions."

Additionally, a joint research project through a specialized institution will be conducted to survey and deeply review the housing lease system. MOLIT will focus on the social and economic aspects, such as evaluating the impact on the rental market and simulating improvement measures, while the Ministry of Justice will concentrate on legal aspects related to housing lease relationships, including overseas legislative cases and legal relations between lessors and lessees.

So far, the two rental laws have been criticized for causing various side effects, such as rapid increases in jeonse prices and the conversion of jeonse to monthly rent. According to KB Real Estate’s monthly time-series data, from July 2020 to this month, apartment jeonse prices in Seoul rose by 23.91%. From July 2014 to July 2020, Seoul jeonse prices increased by 22.08%, meaning the increase over the past two years exceeded that of the previous six years.

Tenants who could not afford the sharply rising jeonse prices had to switch to monthly rent. According to fixed-date statistics from the Court Registry Information Plaza, the proportion of monthly rent in Seoul’s rental market reached 53.0% in the first half of this year. Compared to 42.3% in 2019 before the introduction of the two rental laws, this is an increase of more than 10 percentage points. As tenants shifted to monthly rent, monthly rent prices naturally rose as well. This month, Seoul’s KB Apartment Monthly Rent Index reached 103.1, the highest monthly level ever recorded. The KB Apartment Monthly Rent Index is calculated by surveying the monthly rent trends of medium-sized apartments with exclusive areas of 95.86㎡ or less.

Meanwhile, during his nomination as minister, Won Hee-ryong, Minister of Land, Infrastructure and Transport, stated that "the three rental laws require improvements close to repeal." At a Kwanhun Club discussion on the 29th of last month, he also described the rental laws as "hasty legislation" and said they "need fundamental revision." He emphasized, "While the jeonse and monthly rent reporting system should be developed, the two laws?the rent ceiling system and the right to request contract renewal?have significant side effects and should be abolished, and a completely new method to guarantee tenants’ housing rights must be established."

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