The government has decided to defer the owner-occupancy requirement for all dwellings with tenants inside land transaction permit zones, but observers say the anticipated increase in listings will likely be limited. With the implementation of heavier capital gains taxes sharply reducing the supply of "renter-in-place" listings from multiple-home owners, the government intends to bring even nonresident single-home owners' properties to market. Analysts say, however, there is little real incentive to sell. In core areas of Seoul in particular, many believe that if they sell now, they will never be able to buy back in, making it unlikely that nonresident single-home owners will rush to sell.
Some even warn the measure could reignite instability in the jeonse and monthly rental markets. The government says that if people without homes buy with jeonse and become owners, rental demand will decrease as well, keeping the market in balance. But market participants say that without new supply, a reduction in existing rental stock will inevitably heighten housing insecurity for tenants.
The Ministry of Land, Infrastructure and Transport said on the 12th at Government Complex Seoul in Jongno-gu, Seoul, that when a transaction involves a dwelling within a land transaction permit zone that is currently leased or has a registered jeonse right, the buyer's move-in requirement will be deferred until the lease expires. A previous measure that deferred the owner-occupancy requirement when a person without a home purchased a multiple-home owner's listing before the end of the capital gains tax relief period has now been expanded to all dwellings with tenants, including those owned by nonresident single-home owners.
The government expects the move to stimulate transactions centered on end users and to resolve fairness concerns by easing regulations that had applied only to multiple-home owners' listings. An official at the Ministry of Land, Infrastructure and Transport (MOLIT) said, "There were complaints that nonresident single-home owners did not have the same quick opportunity to dispose of a dwelling as multiple-home owners," adding, "This measure is intended to provide equal transaction opportunities."
◇ "Hard to trade up" — limited increase in listings from nonresident single-home owners
Market consensus holds that "renter-in-place" listings added by this measure will not increase as much as multiple-home owners' listings did before the end of the capital gains tax relief. Listings from multiple-home owners are already constrained by heavier capital gains taxes, and while nonresident single-home owners' properties could come to market, there are currently no measures to entice them.
Buyers have the incentive of a deferred owner-occupancy requirement, but nonresident single-home owners find it hard to sell and trade up to their preferred areas. The government limited eligibility to purchase renter-in-place listings to people without homes as of the 12th of this month. As a result, nonresident single-home owners do not qualify as of that date and cannot receive the owner-occupancy deferral. An estimated 830,000 units owned by multiple-home owners and nonresident single-home owners are currently leased.
Nam Hyeok-u at Woori Bank's Real Estate Research Institute said, "It's positive in that the base of potential sell-side supply has widened," but added, "Heavier capital gains taxes on multiple-home owners remain in place, loan regulations make it hard to trade up to better areas, and reconstruction complexes also face restrictions on transferring member status." Nam continued, "Many sellers want to watch market conditions and the direction of tax reforms, so a rapid surge in listings in the short term is unlikely."
Kim Hyo-seon, senior real estate expert at KB Kookmin Bank, also said, "The application criteria and exceptions are not clearly organized, so whether something is regulated and the actual severity of penalties are unclear," adding, "For various reasons, nonresident single-home owners will find it hard to easily sell their one dwelling in core areas of Seoul."
◇ Tenants pushed out… concerns over worsening jeonse and monthly rental shortages
Concerns are mounting about instability in the jeonse and monthly rental markets. Nam said, "If regulations on nonresident single-home owners are strengthened in earnest, some may try to return for owner-occupancy in areas with strong school districts or close job-housing proximity," adding, "As rental listings shrink and new tenant demand rises, price volatility in jeonse and monthly rents could increase."
A real estate expert said, "The jeonse market is not a place where 1-1=0," adding, "As tenants pushed out of core areas look for jeonse and monthly rentals and move to similar living zones, an overall shortage of jeonse and monthly rental listings could emerge."
Yoo Seon-jong, a professor in the Department of Real Estate at Konkuk University, said, "If you buy a nonresident single-home owner's listing, even if the new contract holder receives a deferral of the owner-occupancy requirement, that person will still move in, which means someone else has to vacate. The jeonse and monthly rental markets will inevitably be jolted." Kim, the Commissioner, also said, "If the land transaction permit system remains in place and the government keeps encouraging listings to come out, tenants' housing insecurity will also inevitably grow," noting, "In particular, many who remain in the jeonse market are those for whom buying a home is difficult, so housing insecurity is likely to worsen."
The government, however, expects the rental market will not face worsening instability. An official at the Ministry of Land, Infrastructure and Transport (MOLIT) said, "This measure is designed so that only people without homes can buy," adding, "Because existing jeonse and monthly renters will become owners, demand will decline along with supply, so we judge there will be no major imbalance in the overall market."