Starting with Controlling Jeonse Prices in Seoul

Speed of Processing the 'Lease 3 Laws' Including the Jeonse Rent Cap System... Jeonse Rental Taxation Threshold Likely to Be Lowered

[Asia Economy Reporters Jang Sehee and Kang Nahum] Regarding President Moon Jae-in's emphasis on protecting actual homebuyers and his order to expand housing supply on the 2nd, the government is expected to prioritize measures to address rising jeonse prices. This comes as jeonse prices in Seoul have skyrocketed even after the June 17 real estate measures, causing widespread dissatisfaction among ordinary citizens. The ruling party is also hastening real estate policies.

A senior government official said in a phone interview with Asia Economy on the 3rd, "The biggest problem in the current real estate market is that Seoul's jeonse prices are not stabilizing," adding, "Strengthening tax measures also has an immediate diminishing effect, so we are considering various alternatives."

Additional measures the government may introduce include pushing forward the amendment to the Housing Lease Protection Act (the "Lease 3 Laws") which includes the jeonse and monthly rent cap system, expanding government rental housing supply, and taxing jeonse rental income of owners with two houses. The Ministry of Land, Infrastructure and Transport and the Ministry of Economy and Finance, among other related ministries, plan to announce measures soon after consultations.

First, the government and the Democratic Party of Korea are expected to accelerate the processing of the Lease 3 Laws, which were proposed in the 21st National Assembly. The housing lease protection bill contains all the promises of the Moon Jae-in administration to realize tenant housing welfare, including the one-time extension of the contract renewal right (2+2 years) and a 5% cap on jeonse and monthly rent increases. A Ministry of Land official said, "The Lease 3 Laws, including the jeonse and monthly rent cap system, are national agenda items, so they will be pursued," adding, "Realistically, the jeonse market is unstable, but there are no suitable ways to increase supply." However, some within the government are concerned that implementing the Lease 3 Laws may initially cause jeonse prices to surge and worsen market conditions.

In fact, the rise in Seoul's jeonse prices is significant. On the 2nd, the Korea Real Estate Board announced the weekly apartment price trends nationwide for the 5th week of June 2020 (as of June 29), reporting that Seoul's jeonse prices rose by 0.1% compared to the previous week. Strong increases were seen in Seocho-gu (0.2%), Gangdong-gu (0.17%), Songpa-gu (0.16%), and Gangnam-gu (0.14%).

The government also plans to promote measures to expand jeonse supply. It is known to be considering expanding the annual supply of rental housing by about 140,000 units or advancing the supply schedule. However, concerns remain as these measures do not have immediate effects. Supplying rental housing requires securing land and reflecting budgets, which takes time. A government official said, "The only thing the government can support is advancing the supply schedule for rental housing," adding, "However, since securing supply land takes time, it will be difficult to see immediate market effects." Additionally, the policy to change the taxation criteria on jeonse rental income from owners with three houses to those with two houses may also be included in the jeonse measures.

On the same day, Lee Hae-chan, leader of the Democratic Party of Korea, said at the Supreme Council meeting held at the National Assembly, "The recent real estate market is very unstable, and I sincerely apologize to the public," adding, "The party will swiftly prepare fundamental and systematic measures." Lee said, "It is clear that regional regulations and financial regulations alone have limitations," and added, "We will comprehensively review housing supply, rental business policies, and the recovery of speculative income to establish fundamental policies that will resolve homeownership and housing insecurity."