The government has eased the lodging business reporting standard for residential officetels converted into lodging facilities that had become a burden. It is expected to positively affect attracting foreign tourists and easing the room shortage. On the other hand, some analysts say side effects such as polarization depending on location and poor entrusted management could also emerge.
According to the real estate industry on the 8th, the government recently eased the lodging business reporting standard for residential officetels, which had been plagued by illegal residential use and vacancies, from the existing 30 rooms to "1 room." Earlier, the Ministry of Land, Infrastructure and Transport held the 31st National Smart City Committee meeting on the 5th and granted a regulatory sandbox exception to a demonstration project for an online platform for small-scale residential officetel owners that includes this measure. As early as April, the government decided to grant a special case under the Public Sanitation Act so that even if an owner holds only one unit of a residential officetel, the owner can legally operate a lodging business.
Although residential officetels are legally lodging facilities, strict standards had applied that required an individual to own at least 30 rooms or secure at least one-third of the total building area to report a lodging business. Because of this, independent operations were virtually impossible for small firms.
The real estate development industry expects the government's easing to play a major role in attracting foreign tourists and alleviating the shortage of lodging supply. A representative of a development company, identified as A, said, "The currently completed stock of residential officetels amounts to about 140,000 rooms, and even if only 10% are converted to lodging use, that would be about 14,000 rooms—the same effect as building 47 hotels with 300 rooms each overnight," adding, "To usher in an era of 30 million foreign tourists visiting Korea annually, expanding lodging facilities is essential, and residential officetels are more competitive than general hotels."
By contrast, real estate experts predicted that side effects such as polarization by location could occur. Shin Boyeon, a professor in the Department of Real Estate AI Convergence at Sejong University, said, "Residential officetels in areas with abundant tourist demand may escape the slump to some extent thanks to this government measure, but those in outlying areas with no foreign demand could still fall into a dilemma, unusable for either residential or lodging purposes."
During the period of strengthened real estate regulations in 2018, residential officetels drew attention among housing demand as a "substitute for dwellings" free from regulations such as heavier acquisition taxes. However, when the government announced in Oct. 2021 that it would impose a performance enforcement fine of 10% of the standard market value if used for residential purposes, the residential officetel market entered a downturn.
Afterward, centered on outer areas of the Seoul metropolitan region and provincial tourist spots, listings with a "minus premium" that fell from tens of millions to hundreds of millions of won below presale prices flooded the market, and mass vacancies occurred. Vacant units left idle without lodging business reporting only increased the burden of interest.
There were also criticisms that if one-room operations for residential officetels are allowed, entrustment firms with no capital investment would proliferate, entrenching a structure in which they take commissions without taking responsibility. If individual units operate through different entrusted firms, conflicts of interest and disputes could intensify in common-area management such as front desk operations, elevator advertising, and security.
A construction industry official, identified as C, said, "There is one residential officetel building, but policy is wavering between lodging and residential use, fueling confusion," adding, "If individual lodging operations that pursue revenue alone spread, the residential environment will be destroyed and the entire building could turn into a ruin."
Some also said that to fully resolve the residential officetel issue, the introduction of "quasi-residential" status is ultimately necessary. A, the developer, said, "Like officetels or senior welfare dwellings, residential officetels should be placed in the quasi-residential category and used as a residential supply source," adding, "At a time when stable residential supply is needed, using the approximately 140,000 rooms of residential officetels as residential products could have significant positive effects, including stabilizing the jeonse market."