[Practical Finance] Will the Obligation for 50,000 Households to Reside Be Lifted... Ambiguous '3-Year Grace Period'

The obligation to reside in apartments subject to the price ceiling system is likely to be deferred for three years from the initial move-in date. However, since lease contracts are typically made on a two-year basis, concerns have been raised that confusion may persist even if the '3-year deferral' alternative is approved.

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According to political circles on the 31st, the National Assembly has begun discussing a plan to postpone the application of the residence obligation to 'within three years from the earliest possible move-in date.' This bill had been stalled due to opposition from the opposition party. However, as demands for legal amendments intensified ahead of the general election, the opposition proposed a '3-year deferral' as an alternative. The ruling party has expressed a willingness to respond more flexibly. Once the Land, Infrastructure and Transport Committee’s bill subcommittee and plenary session are held, the bill is expected to be submitted to the National Assembly plenary session next month.

The Ministry of Land, Infrastructure and Transport (MOLIT) announced the abolition of the residence obligation for price ceiling system housing when it unveiled the 1.3 measures last year. It even proposed retroactive application of the amended law to cases where the residence obligation had already been imposed, but the bill did not pass.

According to MOLIT, there are 76 complexes nationwide subject to the residence obligation, totaling 49,657 households. Among them, 12,032 households in 'Olympic Park Foreon,' a reconstruction of the Dunchon Jugong Apartments, are affected. These are places where the residence obligation applies from the 'earliest possible move-in date' under current law. Among price ceiling system housing contract holders in the metropolitan area, those on public land must reside in the purchased housing for 3 to 5 years, while those on private land must do so for 2 to 3 years.

Contrary to the government’s intentions last year, the failure to abolish the residence obligation led to a sharp decline in pre-sale right transactions. According to the Korea Real Estate Board, the number of pre-sale right transfers in Seoul from January to November last year was 763. Among these, more than 100 transactions per month occurred from June to August after the push to abolish the residence obligation. However, in October and November, when it was anticipated that abolishing the residence obligation would become difficult due to the bill’s stagnation, the numbers dropped to 47 and 51, respectively.

Some point out that although a way to escape the residence obligation has opened, the three-year deferral period could be problematic. The Housing Lease Protection Act guarantees the right to renew contracts after two years, but if the law is amended to allow a '3-year deferral,' contract renewal would not be possible. The landlord can only refuse renewal if they themselves intend to reside in the property, and for a '3-year lease,' it would have to be explicitly stated as a special clause.

Ham Young-jin, head of the Zigbang Big Data Lab, said, "For buyers who need to use the deposit to cover the remaining payment due to financial difficulties, this could be a relief as it buys time," but also pointed out, "If the lease is only for three years, the lease period must be clearly specified as a special clause, which could increase disputes."

There are also opinions that the deferral period should be adjusted to four years to align with the Lease Protection Act. Park Won-gap, senior specialist at KB Kookmin Bank, explained, "To guarantee tenants' housing rights, it is appropriate to adjust the period to four years rather than three."

Criticism has also been raised that the '3-year deferral' stopgap measure could cause market confusion and that a grand decision to abolish the regulation altogether is necessary. Doo Sung-gyu, head of the Mokmin Economic Policy Research Institute, said, "It is not desirable to distort the system as a temporary fix to avoid problems. If such situations repeat, the housing market will inevitably remain in uncertainty," adding, "Since this issue is directly related to people’s livelihoods and causes excruciating pain for those involved, it is appropriate to lift the regulation from a grand perspective."

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