The government will convert vacant shopping arcades and offices into dwellings for young people, newlyweds, and households with newborns. A "hotel jeonse" program, pursued during the Moon Jae-in administration, is being revived in a modified form. Experts said the measure will enable short-term housing supply in downtown areas, but the effect will be limited because the scale of supply is not large.
The Ministry of Land, Infrastructure and Transport said on the 2nd that it will change the use of nonresidential properties—such as shopping, office, and lodging facilities—into quasi-dwellings like officetels and dormitories, and supply them as purchased rental dwellings. Targets include small buildings, the Knowledge Industry Complex, and residential hotel-style facilities in 12 areas of Seoul and Gyeonggi designated as land transaction permit zones and regulated areas. The Korea Land & Housing Corporation (LH) plans to purchase 2,000 households + α through direct purchase or purchase agreements.
A method of purchasing nonresidential properties and supplying them as public rental dwellings was also introduced in 2020. At the time, as the dwellings supply crunch overlapped with a plunge in hotel demand due to COVID-19, the government announced a plan to purchase and remodel shopping arcades to supply rental dwellings. Since most of the nonresidential properties the government purchased were hotels, people even called it "hotel jeonse." Back then, the government aimed to supply 13,000 dwellings through nonresidential conversions, but actual supply came to only 1,000 households.
An official at the Ministry of Land, Infrastructure and Transport (MOLIT) said, "We carried out a similar project from 2020 to 2021, but as construction costs rose starting in 2022 and applications from private operators did not come in, hotel remodeling projects were effectively halted from 2022." The official noted differences from the past, saying, "This time, unlike before, LH has also adopted a method of purchasing directly from building owners," and added, "Previously, the target was nonresidential properties less than 10 years old, but by easing the building age standard, we can purchase nonresidential properties that are 30 years old or less."
Although MOLIT said it designed the policy differently from the past, there are hurdles to clear for this policy to succeed in practice. When the same policy was implemented before, it was difficult to obtain business consent when multiple people owned the building. This time as well, since the principle is to purchase by building wing, owners' consent is a prerequisite, and where ownership is dispersed, the project is expected to face difficulties.
Also, while the government has decided to judge price appropriateness using quantified indicators to prevent "overpriced purchases," it remains to be seen whether nonresidential owners can be enticed on price, given that remodeling expense is significant.
Lee Eun-hyung, a research fellow at the Korea Institute of Construction Policy, said, "On top of the shopping arcade price, you have to add remodeling expense for floor noise prevention and water and sewage facilities, so the expense burden is heavy," and added, "Even if you bear such expense, if there is a single building owner, it can be sold if the owner agrees. But if there are multiple owners and they find the expense burdensome, the project cannot gain speed."
The market viewed the policy of converting nonresidential properties into dwellings as a strong will by the government to increase supply. However, it said it may be insufficient to calm instability in the jeonse and monthly rent markets. There are also concerns that the policy's effectiveness as a short-term supply measure could be weakened, as the supply effect is expected to materialize after the second half of next year. Considering the period for contract after the nonresidential conversion purchase notice, permits and approvals for change of use, and remodeling construction, actual move-ins are expected as early as the second half of next year.
Ham Young-jin, head of the real estate research lab at Woori Bank, said, "Most commercial facilities are located in downtown areas, so using them for lease supply is positive," and added, "Given changes in the online distribution market, it is also a good option for operators facing high vacancy risk, but there is a limitation in that actual supply volume is not large compared with volumes built and supplied in bulk."
Another real estate expert also said, "The requirements are strict when changing the use of a commercial building to residential," and pointed out, "Although the policy goal is short-term supply, considering the permitting and approval period, the actual supply timing may not be as fast as expected."
Some argue that instead of purchasing uncompetitive nonresidential properties, the government should create an environment in which the market can voluntarily convert their use to dwellings. Seo Jin-hyung, a professor in the real estate law and administration department at Kwangwoon University, said, "Rather than having the public sector purchase Knowledge Industry Complexes or shopping arcades with unsold units or vacancies, it would be more desirable to enable private operators to directly change their use and supply them as dwellings."