[Real Estate A to Z] "They said you could live in it"... Why has Saengsuk turned into a burden?

"Just a few years ago, people said buying a unit was like winning the lottery, so they invested in long-term stay facilities (Saengsuk). But now, it looks like we might have to pay compulsory fines worth tens of millions of won. Since these units are no longer popular in the market and are being traded at negative premiums (Mafi), I feel completely lost about what to do."

The concerns of Saengsuk buyers, who once enjoyed tremendous popularity as an alternative to apartments, are growing. Until now, many used Saengsuk illegally as housing without changing its designated use, taking advantage of the fact that it is not counted as a housing unit. However, the Ministry of Land, Infrastructure and Transport has announced crackdowns on illegal use after a grace period, which could result in compulsory fines exceeding tens of millions of won. Because of this, there has recently been a surge in listings trading below the original sale price, known as 'Mafi.'

What Exactly Are Long-Term Stay Facilities?

Long-term stay facilities (Saengsuk) were introduced in 2012 as accommodations intended for extended stays. It is easy to understand them as a hybrid between residential housing and hotels. Unlike typical accommodations such as hotels or motels, Saengsuk allows medium- to long-term stays and features cooking facilities.

Saengsuk is similar to officetels but is classified as a lodging business facility under the Public Health Control Act, meaning it cannot be used as housing and can only be operated as lodging through business registration. However, many have taken advantage of the loophole that using it as housing is not strictly prohibited, which contributed to its popularity.

Additionally, since Saengsuk units are not counted as housing, they are exempt from acquisition and capital gains tax surcharges applied to multi-homeowners, which further attracted investors. Because no subscription savings account is required at the time of sale and there are no restrictions such as resale limitations, it became a niche investment product.

Why Did Saengsuk Become a Burden?

As the use of Saengsuk exploiting this loophole became more widespread, controversies over illegal residential use grew. In October 2021, the Ministry of Land, Infrastructure and Transport explicitly prohibited using Saengsuk as housing. Subsequently, the government provided a two-year grace period during which Saengsuk could be converted to officetels by temporarily relaxing building standards. However, with less than four months left until the grace period ends this October, industry insiders say there are hardly any cases of actual conversion.

The main reason is that the building standards for Saengsuk and officetels differ. To convert a lodging facility like Saengsuk into an officetel, parking spaces must be roughly doubled, and corridor widths must be expanded to at least 1.8 meters. Additionally, applying current approval standards for smoke exhaust systems and fire-resistant glass windows makes it rare for Saengsuk to qualify for use conversion.

District unit plans also pose obstacles. While Saengsuk, originally not housing, can be built in commercial zones, officetels cannot, requiring a change in the entire plan. Moreover, since Saengsuk combines common and exclusive areas, use conversion to officetel is only possible on a floor-by-floor basis, requiring 100% agreement from all buyers to proceed. In reality, this makes conversion very difficult.

What Is the Fate of Saengsuk That Failed to Convert to Officetels?

If Saengsuk fails to convert to officetels, it must continue to operate as lodging after registering as a lodging business. The problem is that most existing Saengsuk were built as apartment substitutes, so many are in locations where generating income through lodging is difficult.

The situation becomes even more complicated if a lease contract is already in place and tenants are residing. If Saengsuk can no longer be used as housing, future jeonse (long-term deposit lease) loans will not be available, and finding new tenants will be impossible. Therefore, even returning the existing tenants' deposit guarantees may become a heavy burden.

Industry insiders are calling for practical measures to address this. A representative from the Residence Association said, "Ultimately, construction companies and developers who sold Saengsuk units are stepping back, leaving only the buyers to bear the compulsory fines," and urged, "The Ministry of Land, Infrastructure and Transport should provide guidelines to relax common standards held by local governments, such as parking requirements and district unit plans."