Construction Industry Research Institute, 'Policy Measures for Stabilizing the Housing Market' Report
Government's Overlapping Regulations on Sales Market and Strengthened Actual Residence Policies
Reducing Rental Listings and Increasing Volatility in the Jeonse Market
[Asia Economy Reporter Kangwook Cho] A report has emerged indicating that the government's strengthened real residence requirements to curb soaring housing prices are triggering a shortage of jeonse (long-term lease) housing. In particular, it points out that the comprehensive strengthening of real residence requirements, combined with the implementation of the Lease Protection Act 2, is creating a structure where new rental supply decreases and rents increase.
According to the real estate industry on the 12th, the Construction Industry Research Institute stated in its recently released report, "Policy Measures for Housing Market Stabilization," that overlapping regulations on the sales market and strengthened real residence policies are reducing rental listings and leading to increased volatility in the jeonse market.
According to the Korea Real Estate Board, nationwide apartment jeonse prices showed a long-term stable trend with negative growth in 2018 and 2019. However, from the second half of 2019, prices shifted to an upward trend, and last year, both the metropolitan area and provinces saw simultaneous increases of 8.5% and 6.3%, respectively. This marked the highest growth rate since 2015 for the metropolitan area and since 2011 for the provinces.
The problem is that the rate of increase has been gradually expanding since the second half of last year. The report pointed out that this phenomenon is linked not only to the government's strengthened real residence requirement regulations but also to the implementation of the Lease Protection Act 2. Currently, Korea's housing market has the unique characteristic that the jeonse system exists, creating a strong interconnection between the rental and sales markets. Jeonse operates on a structure where rental income is forgone in favor of securing profits through capital gains. In other words, jeonse prices are directly affected by fluctuations in sales prices and costs arising from sales market regulations.
Heo Yoon-kyung, a research fellow at the Construction Industry Research Institute who authored the report, explained, "Jeonse shows higher price volatility compared to monthly rent and is directly influenced by changes in the sales market. It tends to have larger increases during upswings and larger decreases during downturns compared to monthly rent," adding, "Against this backdrop of the jeonse market, overlapping regulations on the sales market and strengthened real residence policies have reduced rental listings and led to increased volatility in the jeonse market."
Accordingly, there is a call for reviewing the effects and side effects of the strengthened real residence requirement policies implemented to stabilize the sales market on the overall housing market. It also suggests that immediate supplementary measures are needed from the perspective of stabilizing the rental market.
Research fellow Heo emphasized, "The effectiveness of blocking investment demand is limited, and the real residence requirement for reconstruction targets, which leads to a decrease in jeonse listings in urban areas, needs to be abolished," adding, "On the other hand, the strengthened real residence requirements may make it difficult for the homeless or first-time homebuyers to own homes, so support policies for homeownership should be considered."
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