[Initial Perspective] After 1 Year, '2-Year Actual Residence' Nullification and Self-Praise of the 'Lease 3 Laws'

Real estate stock photo / Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Jo Gang-wook] In the real estate market, there is a term called ‘mom-tech.’ As the barrier to winning new apartment lotteries rises, some investors opt to purchase old apartments and live there while aiming for redevelopment or reconstruction as a form of asset management. This investment involves enduring physical inconveniences such as drafts, noise, and rusty water, with the expectation of capital gains after development.

This was no exception in Gangnam, Seoul’s representative affluent area. Due to the two-year mandatory residence regulation for reconstruction, which was a key part of the June 17 measures last year, owners of reconstruction apartments in Gangnam had no choice but to adopt the ‘mom-tech’ approach. At that time, most owners of old reconstruction apartments in Gangnam lived elsewhere and rented out their homes because the apartments were old and cramped.

Recently, an event occurred that freed these owners from the forced ‘mom-tech.’ On the 12th, the regulation requiring reconstruction complex association members to reside for two years to receive new apartment pre-sale rights was abolished. This was the first case of a real estate policy introduced by the Moon Jae-in administration being withdrawn before being applied to the market. Originally, this regulation was intended to block speculative demand in reconstruction. However, as owners evicted tenants to meet the residence requirement, it ironically worsened the jeonse (long-term lease) shortage. The number of jeonse listings decreased, and existing tenants were forced out, causing undue harm.

About a week later, a survey showed that jeonse listings at Eunma Apartments in Daechi-dong, Seoul, more than doubled, and asking prices dropped by about 100 million KRW. Jeonse listings also significantly increased in reconstruction-targeted apartments such as Seongsan Shiyoung Apartments in Seongsan-dong, Mapo-gu, Hyundai 1st Complex in Gaepo-dong, Gangnam-gu, and Sangye Jugong 6 Complex in Sangye-dong, Nowon-gu. During the same period, jeonse listings in Seoul apartments increased by 1.1%. This was welcome news for Seoul, where the jeonse shortage and conversion to monthly rent were intensifying, but tenants who had already signed contracts ultimately suffered losses.

This month marks one year since the implementation of the Lease Protection 3 Laws, including the right to request contract renewal and the cap on rent increases. Although controversy over the effectiveness of these regulations continues, the government promoted the achievement by stating that “the majority of tenants were able to benefit from the system.” However, the market’s response differs. Since the introduction of the three laws, disputes between landlords and tenants during contract renewals have surged, and a ‘dual pricing phenomenon’ has become entrenched, with significant differences in jeonse deposits between apartments subject to rent caps and those not. Regarding concerns over the jeonse shortage in the second half of the year, the government dismissed them as “initial confusion during implementation,” showing a large gap with market perceptions. Meanwhile, the average jeonse price for Seoul apartments, which had remained around 400 million KRW from 2017 to 2020, jumped to 600 million KRW last month. According to the Korea Real Estate Board’s official statistics, Seoul apartment jeonse prices have risen by 0.1% weekly over the past month, showing signs of overheating. This is why critics argue that the government’s self-praise is a ‘half analysis’ that only looks at what it wants to see.

Criticism of the government’s real estate policies continues unabated. There are even sharp accusations that the government itself is the main culprit distorting and disrupting the real estate market. Rather than self-promotion, what is needed first is deep reflection on why simply removing the unreasonable real estate regulations enforced by the government could accelerate stabilization of the housing market.