Ahead of the new government's launch, bills that could significantly impact the real estate market continue to be proposed and withdrawn in the National Assembly. Most of these bills were introduced with the purpose of legally restricting the duration of monthly and annual rental contracts and rental fees to strengthen tenants' housing stability and rights. However, criticism regarding excessive regulation of rental contracts and market control has arisen, and the lawmakers who proposed the bills are repeatedly withdrawing them voluntarily. As a result, the market is on alert for which policies will actually be legislated after the new government's launch.
◆ Extension of the contract renewal right, legislation to restrict the sale of rental dwellings withdrawn after controversy
According to the National Assembly on the 9th, there have been three real estate-related bills proposed or introduced in the National Assembly and the political arena since the end of last year. The three bills are: the 'Partial amendment to the Housing Lease Protection Act' proposed in November of last year by 10 lawmakers, including Yoon Jong-o of The Progressive Party and members of the Democratic Party; the 'Partial amendment to the Housing Lease Protection Act' proposed in March by the Democratic Party's livelihood committee; and the 'Partial amendment to the Special Act on Private Rental Dwellings' introduced in April by 10 lawmakers, including Lee Gang-il of the Democratic Party. All three bills have either been voluntarily withdrawn or discussions have been halted.
Two proposed amendments to the Housing Lease Protection Act that were discussed in the National Assembly include provisions to extend the currently limited contract renewal rights for one time only. Lawmaker Yoon Jong-o's proposal sought to allow unlimited use of the contract renewal rights, while the Democratic Party's livelihood committee discussed allowing tenants to reside for up to 10 years using the contract renewal rights. Yoon's proposal included establishing a committee to announce reasonable rental prices and to resolve disputes based on that in case conflicts arise. Concerns were raised in the market that 'the supply of monthly and annual rentals could sharply decrease and rental prices could suddenly skyrocket,' leading to all discussions being halted.
The 'Partial amendment to the Special Act on Private Rental Dwellings' proposed on the 28th of last month by 10 lawmakers including Lee Gang-il of the Democratic Party stipulates that after the mandatory rental period of private rental dwellings has ended, if the business operator transfers the property, it should be preferentially transferred to the non-housing tenants living there, followed by public housing operators. The transfer price is also limited to the arithmetic average determined by appraisers selected by the rental operator and the tenant. Since the appraisal values are usually assessed lower than the market price, if this bill passes, the property owner will have to sell the house for less than the market price. This bill was also withdrawn due to controversy over infringement of private property rights. A market expert noted that it is "an anti-market law that demands apartment owners to become philanthropists."
A representative of Lee's office stated, 'The terminology used in the bill has caused misunderstandings in the market,' indicating plans to refine and reintroduce it. The bill referred to 'rental business operators' of private rental dwellings. Rental business operators can register according to the requirements for private rental businesses and construction rental businesses, and according to Statistics Korea, there were 267,501 individuals (corporate + individual) as of 2023. The intent was to apply the law only to public-supported private rentals supplied by construction companies, but the term 'rental business operators' was used, which encompasses all personal rental business operators. A staff member from Lee's office noted, 'In local public-supported private rentals, it is often advertised that after the mandatory rental period is over, it will be converted into sales from the stage of recruiting residents,' adding, 'There are many disputes and conflicts regarding the sales price when converting into sales, which was intended to be regulated but led to misunderstandings.'
◆ "The new government needs to consider flexible regulations and support measures that are applicable to reality"
Controversy grows every time these kinds of bills are proposed in the real estate market. There are divided opinions on whether the bills can genuinely help tenants, whether they excessively restrict private property rights, and whether there is a possibility of adverse effects arising.
Lee Sang-geun, a professor at the Graduate School of Real Estate at Sogang University, stated, 'Radical real estate policies can result in soaring prices due to a balloon effect (adverse side effects),' adding, 'In the past, there have been frequent regulations in policies claiming to control housing prices, but there were instances of soaring house prices. Therefore, I hope the new government will not repeat these errors by over-regulating.' Suh Jin-hyung, a professor at the Department of Real Estate Law at Kwangwoon University, also commented that 'extending the rental period to more than 10 years and limiting the targets and prices for selling rental dwellings could constitute an excessive infringement on private property rights,' and advised that 'populist policies and bills could cause turmoil in the market and should be refrained from.'
One reason for the growing controversy every time a bill related to the rental system is submitted is the unique Jeonse system that exists only in South Korea. This system allows individuals to live without paying rent by providing a large deposit amounting to more than half the house price, and there are no similar cases abroad. Moreover, the uniform regulation of rental contract duration across all dwellings nationwide is cited as a factor provoking market backlash.
France allows three-year rental contracts which can then be continuously extended. Additionally, regulations prevent landlords from terminating contracts without just cause, such as using or selling the property. In Germany, it is also possible to enter into contracts without a fixed term, allowing for continuous extensions. However, if either the landlord or tenant does not wish to renew the contract, the court determines whether the reasons for this are justifiable (justifiable reason system) and decides on the contract termination. No place, like South Korea, obliges contract renewal solely based on the tenant's expression of intent.
It is rare for laws to set a limit on rent increases at a cap of 5%. In France, the National Institute of Statistics and Economic Studies (Insee) announces a rent reference index called IRL (Indice de référence des loyers) that takes into account inflation rates and other factors each quarter to determine a rental cap. For the first quarter of this year, it is set at 1.82%.
Lee Sang-young, a professor at the Department of Real Estate at Myongji University, and others, in their 2020 publication 'Rental Housing Industry Theory,' stated that 'to alleviate the burden from newly introduced direct rent regulations and the extension of mandatory lease periods, it is necessary to more boldly introduce financial and tax benefits that favor landlords operating rental housing businesses.' They also suggested that 'through this, it would be desirable to lead the private sector to operate rental housing businesses with reasonable profits and to recognize their public role.' This professor expressed the hope that 'the new government would strive to establish flexible regulations and support measures tailored to the locality and circumstances, rather than uniformly regulating prices and contract durations.'