[Takryucheongron] Yanggose Waehwaro Maemaesijang Jeongsanghwa Yudohaeya

Professor Kwon Dae-jung, Graduate School of Real Estate, Myongji University

[Asia Economy] 'New housing supply is at a supply cliff,' 'The sales market is a dilemma for multi-homeowners,' 'The jeonse market is losing tenants due to a shortage of listings.' This is the recent situation in the real estate market.

The government increased taxes on multi-homeowners and corporations through the June 17 and July 10 measures, while abolishing benefits for housing rental business operators. The price ceiling system for new housing, implemented since July 30, is blocking new housing supply. Subsequently, with the passage and partial enforcement of the three lease laws (jeonse and monthly rent cap system, contract renewal request right system, jeonse and monthly rent reporting system) and the three real estate tax laws (Local Tax Act related to acquisition tax, Income Tax Act related to capital gains tax, Comprehensive Real Estate Tax Act related to comprehensive real estate tax), the shortage of jeonse properties has accelerated.

The cause of rising housing sales and jeonse and monthly rent prices is understood to be the government's real estate market regulations. In particular, the biggest cause is the 1,607,000 registered rental housing units as of the end of June. When housing is registered as rental housing, it cannot be sold during the rental period, so it does not come onto the sales market, which causes not only sales prices but also jeonse demand to fail to shift to sales demand, leading to rising jeonse and monthly rent prices. Also, the shortage of listings due to the exercise of the contract renewal request right and strengthened regulations such as the two-year actual residence obligation for reconstruction move-in rights are creating a shortage of listings in the jeonse and monthly rent market, driving prices up. Especially in the jeonse and monthly rent market, houses occupied by tenants exercising the contract renewal request right have become difficult to sell. The government initially allowed landlords to refuse contract renewal requests if they expressed an intention to reside, but when the landlord changes due to a sale, the registration transfer must occur six months before the contract expiration date, and the landlord must have plans to reside. As a result, properties occupied by tenants effectively do not come onto the market. Additionally, with limited income and fears of rising taxes, many jeonse listings are being withdrawn and converted to semi-jeonse or monthly rent, which also contributes.

How long will this situation continue? The government says that after 2024, 1.27 million housing units supplied in the metropolitan area, including the 3rd new towns, will begin to be occupied in earnest. Moreover, when the eight-year registered rental housing units expire and come onto the sales market, the housing market will stabilize, but until then, both the sales and jeonse/monthly rent markets have no solution, and price pressures will continue. According to Real Estate 114, the number of apartment move-ins in Seoul is 42,456 units by the end of this year, 22,977 units next year, and 13,419 units in 2022, which is about half. Furthermore, the number of units lost due to redevelopment and reconstruction projects exceeds the number of move-ins. According to data from the Smart Tube Research Institute, the number of demolished houses in Seoul was 47,534 in 2017, 42,414 in 2018, and 37,675 in 2019, showing that demolished houses outnumber move-ins, increasing rental demand. Therefore, the move-in supply is far short of demand, causing housing prices and jeonse/monthly rent prices to rise. Even if the government increases the number of new housing units through efforts, if move-in supply is insufficient, it will not stabilize the jeonse/monthly rent market. When move-in supply is insufficient, prices rise. Therefore, the government should encourage the general sale of registered rental housing. Although it is possible to sell after half the rental period has passed, tax benefits favor completing the full period, so owners are unlikely to sell. To stabilize the market immediately, rather than imposing heavy capital gains taxes, the government should temporarily ease them to open an exit route for sales and normalize the sales market. Only then will jeonse demand shift to sales demand, reducing jeonse demand and increasing rental supply, stabilizing the market. Regulation is not a cure-all.

Kwon Dae-jung, Professor, Graduate School of Real Estate, Myongji University