Mandatory Subscription to Lease Business Guarantee Insurance
Including Appraisal Fees in Premiums
Government Pushes to Amend Enforcement Decree Amid Strong Opposition
Use of Officially Announced Prices Instead of Appraisal Values Allowed
[Asia Economy Reporter Moon Jiwon] Registered rental housing business operators will be able to use not only the existing 'appraised value' but also the publicly announced price and standard market price when calculating the housing price while subscribing to rental deposit guarantee insurance.
In this case, rental business operators will no longer necessarily have to bear the appraisal fee to subscribe to the guarantee insurance. This is interpreted as an intention to appease multi-family and multi-unit housing rental business operators who have strongly opposed the recent mandatory subscription to guarantee insurance, saying that they have to pay appraisal fees on top of insurance premiums.
According to the Ministry of Land, Infrastructure and Transport on the 19th, the government plans to revise the Enforcement Decree of the Special Act on Private Rental Housing (hereinafter referred to as the Private Rental Act) by early December to allow rental business operators to use 'publicly announced price and standard market price' in addition to 'appraised value' when calculating housing prices for the mandatory guarantee insurance.
Currently, the Enforcement Decree of the Private Rental Act stipulates that the housing price for all types of housing, including apartments, multi-family/multi-unit houses, and officetels, must be determined by the appraised value when subscribing to guarantee insurance. Generally, in the case of the Jeonse deposit return guarantee that tenants subscribe to through the Housing and Urban Guarantee Corporation (HUG), KB market prices, recent sale prices, and publicly announced prices are primarily applied, and the appraised value is used only when landlords or others request it.
The problem is that under the current Enforcement Decree, the appraisal fee must be borne by the rental business operator. The appraisal fee is about 695,000 KRW when the appraised value is 500 million KRW. Additional costs such as actual expenses may also be added. Since an appraisal must be conducted every time a new lease contract is signed every two years, the burden is expected to increase significantly for small-scale rental business operators.
A HUG official said, "In the case of multi-unit housing, if the size is the same for each standard floor, only one representative unit is appraised and applied to other rooms. However, even on the same floor, if the size or structure differs, each must be appraised separately." An industry insider explained, "For small-scale rental business operators, having to undergo an appraisal every two years to subscribe to guarantee insurance can be burdensome."
Unlike apartments, long-term rental business operators of multi-family/multi-unit houses, where voluntary cancellation is not allowed, must mandatorily subscribe to guarantee insurance from lease contracts signed after August next year. As the burden of insurance premiums and appraisal fees required to subscribe to guarantee insurance arises, opposition is intensifying mainly among rental business operators.
Mr. A, a rental business operator living in Seoul, appealed, "I have to pay additional appraisal fees because I must get an appraisal, and I also have to bear insurance premiums and registration fees. If subscription to guarantee insurance becomes mandatory for livelihood-type rental business operators, they will go bankrupt."
The Ministry of Land, Infrastructure and Transport has decided to use the publicly announced price and standard market price, which the government currently sets and announces by housing type, as the basis for calculating housing prices for guarantee insurance. KB market prices and sale prices are not expected to be used. However, new rental business operators who are immediately required to subscribe to guarantee insurance without a grace period must get an appraisal at the time of the lease contract until the Enforcement Decree is revised.
A Ministry of Land, Infrastructure and Transport official said, "Since the obligation to provide information by rental business operators will be applied from December 10 this year, the housing price calculation standards will also be changed accordingly. We are promoting system improvements because rental business operators may feel unfair about having to get a new appraisal."
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