As the government announced plans to ease regulations to allow the private sector to supply long-term rental housing, the REITs (Real Estate Investment Trusts) industry expressed expectations for expanded business opportunities. However, there are assessments that it will not be easy for other operators besides REITs to enter the market. Considering the downturn in the construction industry and the sharp rise in material costs, it is analyzed that securing profitability will be difficult.
On the 28th, Jeong Byeong-yoon, chairman of the Korea REITs Association, analyzed the Ministry of Land, Infrastructure and Transport's announcement of the "New Rental Housing Supply Plan for the Housing Stability of Low-income, Middle-class, and Future Generations" by stating, "From the perspective of diversifying investment assets, the entry of REITs into the private rental market is a positive development." The government plans to propose a bill next month to ease regulations so that companies such as REITs can supply large-scale (over 100 units per complex) rental housing for more than 20 years. The goal is to foster rental-specialized companies to supply rental housing where tenants can live for a long time at reasonable housing costs.
There are also claims that related regulations should be further relaxed since it is practical to involve financially capable operators (including large corporations), but the reality is less feasible. Lee Eun-hyung, a research fellow at the Korea Institute of Construction Policy, said, "I believe a rental housing market where individuals and corporations coexist is a natural structure," adding, "To revitalize private rentals, deregulation on multi-homeowners should also be discussed." Just as not all rental housing in the market can be replaced by public rentals, it is unrealistic for corporations alone to supply rental housing. He further explained, "Negative social perceptions about large corporations engaging in rental businesses will be a limiting factor."
Among the models for long-term private rentals, the autonomous type is subject to the Housing Lease Protection Act (2+2 years, with a 5% cap on rent increases), which is pointed out to reduce incentives for corporate participation. If the first tenant lives for a total of four years and then leaves when the operator tries to raise the rent according to market prices, the next tenant will also be subject to the same four-year term. On the other hand, if the operator sets the initial rent considering the four-year lease, the rent may become excessively high.
There are also forecasts that participation by corporations other than REITs will be low. A developer official said, "Although long-term rental housing can be presented as a business model amid forecasts of a shortage of developable land and a decrease in redevelopment and reconstruction projects, profitability must ultimately be considered, so whether corporations other than REITs will actively participate remains to be seen." He added, "Considering changes in administration and policies, long-term rental housing is indeed burdensome."
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