"Even last year, they said they would energize corporate private rental housing, but the policy changed in less than a year. As regulations make it harder to decide on new investments, the supply of private rental housing could drop significantly in two to three years."A, an official at a corporation that runs a private rental business
The corporate private rental market, where corporations are the landlords, is taking a hit from regulations. With home prices surging recently, loans to rental business operators in regulated areas across the greater Seoul area have been restricted, making new purchase-and-lease investments difficult, and even the exemption from aggregation for the comprehensive real estate tax has disappeared.
To stabilize the rental market, supplying quality dwellings in the greater Seoul area is essential, but the new regulations are constraining private supply of rental housing, raising concerns that instability in the housing market could grow.
◇ Real estate measures deal a direct blow… "Hard from the investment stage"
According to the real estate industry on the 24th, corporate private rental operators have faced structural constraints on their business since the government announced the Sept. 7 and Oct. 15 measures. By cutting rental operators' loan-to-value ratio (LTV) on dwellings to 0%, the government has made it impossible for private rental corporations to obtain loans when investing in purchase-type rental housing. New purchase-and-lease projects can proceed only if 100% of funds are raised with equity capital.
In addition, by designating all of Seoul and 12 locations in Gyeonggi as regulated areas, the government has made it so private rental operators can no longer receive the exemption from aggregation for the comprehensive real estate tax on dwellings newly acquired in areas subject to adjustment. The exemption from aggregation for the comprehensive real estate tax excludes rental dwellings that meet certain requirements from the tax base. If a punitive tax rate is applied to purchase-and-lease projects, a drop in profitability is inevitable.
A, an official at a private rental corporation, said, "In the industry, the use of loans is an essential element of the business structure, and there are virtually no operators who can run without loans," and noted, "For Seoul officetel investment projects, there are voices saying investment reviews are not proceeding smoothly due to concerns about deteriorating profitability (in terms of the comprehensive real estate tax)."
Corporate private rental operators that directly develop new properties—so-called "construction-type purchase-and-lease"—are not directly affected by the regulations. However, because the exit stage of recovering investment capital through sale has become difficult under the new rules, it is hard to actively pursue new investments.
Typically, in real estate development and rental businesses, capital circulates through the stages of initial investment → stable operation → sale → reinvestment. However, benefits such as acquisition tax cuts or exemption from aggregation for the comprehensive real estate tax apply only in a limited way to the initially registered operator. If an operator sells a rental dwelling, the buyer cannot inherit the tax benefits and becomes subject to punitive taxation. In the end, corporate private rental operators, anticipating difficulty in finding subsequent buyers to recover their capital, have little choice but to be cautious from the initial investment stage.
B, who operates corporate private rental housing in the greater Seoul area, also said, "Among foreign investors, there is talk that domestic corporate rental housing has gotten tougher," and added, "That's because after the new administration took office this year, the policy stance effectively shifted to having the government—such as the Korea Land & Housing Corporation (LH), which does not need loans—lead the supply of rental housing."
◇ "Support last year, regulation this year"… The government's back-and-forth policy
Until last year, the government sought to expand the corporate private rental market to ease housing insecurity such as jeonse fraud and stabilize the market by increasing rental supply. The Ministry of Land, Infrastructure and Transport said at the time, "If corporate long-term rentals are energized, people will be offered a new housing choice in which they can live stably, paying reasonable rents while receiving high-quality residential services in good-quality dwellings." With expanded government support, global investment banks such as Morgan Stanley and KKR and overseas pension funds such as the Canada Pension Plan Investment Board (CPP) began entering the domestic rental market.
As the government reversed policy within a year, the industry is calling for consistency. It warns that if the government's back-and-forth corporate private rental policy continues, the supply base will weaken, worsening the jeonse and monthly rent crunch and heightening instability in the greater Seoul rental market.
A said, "Frequent policy changes and inconsistent regulations make it impossible for private corporations and institutional investors to establish long-term investment and operation plans," and explained, "The government should establish mid- to long-term plans in five- to 10-year units rather than intervene in the short term."
C, an official at a corporation that operates corporate private rental housing, said, "Corporate registered rental dwellings amount to about 80,000 households out of a total of about 1.3 million registered rental households, or about 6%," and added, "With the supply shortage in the greater Seoul area intensifying, if regulations on corporate rental housing are not eased, the burden of jeonse and monthly rent on domestic tenants will rise quickly."
Along with consistent government policy, the industry is also calling for establishing a virtuous cycle to supply quality rental housing. To energize the private rental market, the industry said it is necessary to: ▲ apply land-use zoning regulations flexibly ▲ guarantee continuity of tax benefits for buyers ▲ overhaul the rental business operator system ▲ create an environment that allows private participation to secure a sustainable supply base in urban areas.