[Real Estate AtoZ] Flood of Jeonse Listings in Gangdong-gu... Effect of Suspension of Actual Residence Obligation

Recently, the number of jeonse (long-term lease) listings has surged in areas such as Olympic Park Foreon (Dunchon Jugong Reconstruction). With the jeonse season peaking in April, the marriage season, and jeonse prices rising, the increase in listings is seen as a positive development. This is analyzed as a result of the amendment to the Housing Act, which postpones the mandatory residence obligation for apartments under the price ceiling system by three years, passed by the National Assembly on the 29th of last month. Real Estate AtoZ has taken a closer look at the background and effects of this amendment.

According to the real estate big data platform Asil, as of the 11th, the number of jeonse listings for Olympic Park Foreon reached 609, more than 2.6 times the 227 listings recorded on the 11th of the previous month. A representative of a real estate agency near Olympic Park Foreon said, "Recently, jeonse listings for Olympic Park Foreon have increased, and with the three-year postponement of the mandatory residence obligation, this trend is expected to continue."

View of Olympic Park Foreon (Dunchon Jugong) in Gangdong-gu. [Photo by Yonhap News]

What Are the Mandatory Residence Obligation and the Price Ceiling System?

The mandatory residence obligation has been postponed for three years, leading to an increase in jeonse listings. The mandatory residence obligation requires residents to live in the apartment for 2 to 5 years from the move-in date. It was introduced in 2021 to prevent gap investments where buyers purchase homes with jeonse deposits. This obligation applies only to apartments under the price ceiling system.

The price ceiling system is a policy that limits the sale price of apartments to below a certain threshold. It was implemented in March 2005 to resolve controversies over high sale prices. Initially, the price ceiling system applied only to public land housing, but in September 2007, it was expanded to include housing on private land.

According to a Ministry of Land, Infrastructure and Transport official, the application of the price ceiling system to private land was effectively halted in April 2015 during the Park Geun-hye administration. Previously, areas meeting certain criteria were designated as price ceiling system zones. However, the government then designated only selected areas meeting the criteria as such zones and did not designate any private land areas under the price ceiling system.

Subsequently, the Moon Jae-in administration designated private land areas subject to the price ceiling system in November 2019. The application of the price ceiling system to these designated areas began in July 2020. From then on, housing on public land and designated private land areas became subject to the price ceiling system. Olympic Park Foreon was also subject to the price ceiling system under these circumstances.

In January last year, the current administration eased price ceiling system regulations by limiting private land regulated areas to the three Gangnam districts (Gangnam-gu, Seocho-gu, Songpa-gu) and Yongsan-gu. Olympic Park Foreon remained a price ceiling system area even after the regulatory easing. This is because Olympic Park Foreon had already begun recruiting residents before the government's regulatory easing and thus could not avoid the price ceiling system.

Three-Year Grace Period Granted... But Will Lease Conflicts Arise?

Following the easing of the price ceiling system regulations, the mandatory residence obligation for apartments under the price ceiling system was postponed by three years on the 29th of last month. Residents of price ceiling system apartments, including Olympic Park Foreon, can rent out their homes under jeonse contracts for three years to raise a lump sum. Because of this, jeonse listings are increasing, especially in large apartment complexes like Olympic Park Foreon. A Ministry of Land official stated that the price ceiling system is scheduled to be implemented in mid-this month.

Meanwhile, the three-year postponement period for the mandatory residence obligation is controversial. Since jeonse contracts are typically made in two-year terms, conflicts may arise in the future over the exercise of the right to renew contracts. Kwon Young-sun, a real estate analyst at Shinhan Bank, said, "A three-year postponement period is an ambiguous duration that could lead to conflicts between landlords and tenants. If this continues, it carries the risk of future disputes."

On the other hand, some believe such conflicts will not occur. Rather, the three-year postponement of the mandatory residence obligation is expected to diversify jeonse contract periods. Park Won-gap, senior real estate expert at KB Real Estate, said, "Buyers may opt for a three-year contract from the start to avoid legal issues. Although it would have been better to postpone the obligation for four years, a three-year postponement is unlikely to cause significant conflicts."