"Limited Edition for Sale" in Response to Ban on 'Saengsuk' for Residential Use

Non-Residential Classification Regulatory Blind Spot
Ministry of Land, Infrastructure and Transport Pushes for Sale Act Amendment

"Scarcity Benefit" Leads to Premium Investment
"Premium of 100 Million Won" Quick Sales Also Offered

Interior view of a residential lodging facility in Seoul.

[Asia Economy Reporter Donghyun Choi] The government’s push to amend laws to prohibit the use of residential-type lodging facilities as housing has put related companies on high alert. Some investors are adding premiums and selling their pre-sale rights, citing scarcity of supply.

According to the industry on the 15th, the Ministry of Land, Infrastructure and Transport announced plans to amend the Building Sale Act to require the phrase “No residential use allowed; lodging business registration required” to be clearly stated in pre-sale announcements for residential-type lodging facilities. In particular, the ministry plans to impose enforcement fines if already sold residential-type lodging facilities are used as housing and to encourage changing their use to residential officetels or housing.

Residential-type lodging facilities are products that combine hotels and residential officetels. They have been popular as niche investment products because they have been classified as non-residential, thus having no restrictions on loans or resale.

Following the government’s plan to strengthen regulations, communities sharing information on income-generating real estate were flooded with “urgent sale” advertisements. Many posts offered pre-sale rights for a residential-type lodging facility in Seoul, which recorded a competition rate of over 200 to 1 last month. Mr. A, who purchased this product for 660 million KRW, posted that he would accept only a 100 million KRW premium. There was also a post offering an urgent sale of an entire 30-room residential-type lodging facility in the metropolitan area for 2.7 billion KRW.

In various local areas such as Sokcho in Gangwon and Busan, there are moves to use the government’s regulatory tightening as a marketing tool for residential-type lodging facilities currently on sale. A sales agency representative explained, “The supply reduction due to government regulations is actually a positive factor,” adding, “Especially in prime locations like beachfronts, active transactions at higher prices will be possible.” Another sales company said, “Now is the last chance to get pre-sale rights cheaply,” and added, “Even if the government changes the law, it won’t have much impact.”

However, as regulations on residential-type lodging facilities are strengthened, special caution seems necessary for investments intended for actual residence. Former Minister of Land, Infrastructure and Transport Kim Hyun-mi stated during the national audit in October last year that she would consider measures to prevent residents from registering their address at residential-type lodging facilities. If address registration is prohibited in the future, tenants may lose legal protection.

Meanwhile, Seoul City also took steps to establish its own regulatory measures last month through the “Management Plan for Residential Lodging Facilities within District Unit Zones,” limiting the proportion of residential-type lodging facilities that could be supplied 100% in commercial or quasi-residential areas to 90%.