Revival of Private Registered Rentals... Will Small Apartments Stretch Out?

Apartments in Seoul city viewed from 'Seoul Sky,' the observation deck of Lotte World Tower in Songpa-gu, Seoul

As a measure to stabilize the housing market, the revitalization of private rental business registration has been mentioned, leading to forecasts that the value of small apartments, which had been relatively sluggish in the market, will rise again.

According to the Korea Real Estate Board on the 30th, the sales price index of small apartments in Seoul with an exclusive area of 40㎡ or less was 104.2 last month, an increase of 5.67% compared to 98.6 a year ago. Meanwhile, for large-sized apartments (over 102㎡ up to 135㎡), the index rose about 6% from 97.9 to 103.7 during the same period.

Small apartments generally have a higher price per pyeong compared to large apartments, but their rate of increase was relatively lower than that of medium to large apartments. This is evaluated to be closely related to the rental business registration system, which was effectively abolished after July 2020. This system granted various benefits such as tax and loan advantages when private landlords registered as housing rental business operators with local governments. Small apartments with an exclusive area of 59㎡ or less had relatively low price barriers and high rental demand, making them particularly popular in the real estate investment market. For housing priced under 600 million KRW, benefits such as comprehensive real estate tax and capital gains tax reductions were also provided.

However, amid controversies that "excessive tax benefits were given to multi-homeowners," the related system became ineffective, and the small apartment market was adversely affected. Additionally, as tax burdens increased, the ‘smart one house’ strategy gained traction, resulting in a relatively slower price increase in the small apartment market. In this context, news of the system’s revival is expected to inject vitality into the small apartment market.

Meanwhile, the Presidential Transition Committee’s Real Estate Task Force (TF) held its first meeting on the same day to discuss measures to revitalize the rental housing market. One of the specific policies reportedly being considered is the revival of the registration system for small apartments (exclusive area of 60㎡ or less).

An industry insider said, "Since the system was effectively abolished, the incentive for multi-homeowners to purchase small apartments decreased," adding, "Given that the price increase was also relatively modest, there is a possibility that buying demand will emerge in the future under the perception of undervaluation."