[11·19 Jeonse Measures] Conversion of Commercial, Office, Hotel to Residential "Major Renovation Like New Construction... Low Effectiveness"

"Buildings Constructed Without Considering Cooking and Heating Require Significant Costs for Residential Conversion"
Old Downtown Commercial Buildings with Fragmented Ownership
Concerns Over Difficulty in Obtaining Consent

[Asia Economy Reporter Donghyun Choi] The government’s measures to stabilize the jeonse market announced on the 19th also included some of the remodeling plans for commercial buildings, offices, and lodging facilities that had been mentioned within and outside the political and government circles. The plan aims to supply 13,000 rental housing units by 2022. However, the market expressed concerns, saying the measures have low effectiveness and could cause various side effects.

According to the plan, the government intends to provide incentives such as easing floor area ratio regulations, relaxing remodeling construction permit consent requirements, and allowing use changes and design modifications for buildings under construction to convert commercial buildings, offices, and hotels into residential use. To this end, the scope of public rental housing purchases will be expanded to include commercial buildings, offices, and lodging facilities in addition to housing and quasi-housing. Furthermore, businesses remodeling non-residential buildings into publicly supported private rental housing will be exempted from parking lot expansion requirements and supported with long-term low-interest loans. The remodeling consent rate requirement for these facilities will also be relaxed from 100% to 80%, and use changes and design modifications for buildings currently under construction will be permitted.

However, experts mostly criticized the policy as unrealistic. Sun Jongpil, CEO of Sangga News Radar, pointed out, “The basic premise of residential use is cooking and heating, but hotels are buildings constructed without considering these from the design stage,” adding, “Even if the government purchases and remodels them, major reconstruction equivalent to new construction is practically required.” Lee Eunhyung, senior researcher at the Korea Construction Policy Institute, also noted, “Converting buildings with different uses into residential ones incurs high costs,” and “Exempting parking lot expansion during remodeling will worsen local parking shortages and degrade the living environment.”

The government’s decision to allocate only 2,000 units, or 15%, of the 13,000 units to private-led projects appears to reflect these practical issues. Seo Jinhyung, president of the Korea Real Estate Society and professor at Gyeongin Women’s University, emphasized, “The extremely low private sector portion in this support measure indicates a continued misunderstanding of the market,” and “Recent jeonse difficulties mostly stem from the private sector, so the private rental market should be revitalized, but the causes are being misanalyzed.”

Concerns were also raised that obtaining consent would be difficult due to the fragmented ownership of aging commercial buildings in urban areas. CEO Sun said, “Most commercial buildings are collective buildings with separate owners, so it will be hard to get the 80% consent required for remodeling,” and “If someone owns the entire commercial building, they would choose reconstruction over handing it over to the government.” There were also worries about fairness issues arising if special laws are applied to change the use and design of specific non-residential buildings compared to other non-residential buildings. President Seo said, “Other hotels might exploit the law by citing fairness issues, such as installing kitchen equipment or leasing to foreigners.”

Meanwhile, after the government’s announcement, many posts on various online real estate community boards pointed out problems with the policy. One user said, “In the case of hotels or commercial buildings, if addresses like ‘00 Hotel Room 00’ are exposed, residents of rental housing will be stigmatized.” Another user commented, “There are many entertainment districts around hotels; are they suggesting raising children there?” and “Urban hotels lack nearby kindergartens, schools, and supermarkets, causing many inconveniences.”