The Democratic Party of Korea is pushing to revise the current system that automatically cancels the status of registered rental business operators when the mandatory rental period ends. The party cited concerns that, after automatic cancellation, existing lease contracts continue but tax benefits end, which could cause side effects for both landlords and tenants. The party aims to revisit the system it led to introduce in 2020 when it was the ruling party, six years later.
◇ Ruling camp: "Maintain rental-business status until existing contracts end"
According to the National Assembly and the construction industry on the 6th, the office of lawmaker Bok Gi-wang of the Democratic Party of Korea will hold a forum titled "Expanding the supply of private rental dwellings and stabilizing housing" on the 8th at the National Assembly Members' Office Building in Yeouido, Seoul. The forum is expected to discuss the issue of automatic cancellation of registered rental-business status upon the end of the mandatory rental period and measures to stabilize the supply of private rental dwellings.
The key issue is the timing of automatic cancellation under the Special Act on Private Rental Housing. Bok and others proposed an amendment in Aug. last year to allow registered rental business operators who continue to hold the dwellings after the mandatory rental period ends to maintain rental-business status until the day the already signed lease contract ends.
The current automatic cancellation system was introduced under the "July 10 supplementary measures to stabilize the housing market," announced in July 2020 during the Moon Jae-in administration. At the time, the government abolished the short-term private rental dwellings system with a mandatory rental period of four years and the long-term general private rental apartment dwellings system with a mandatory period of eight years. It also mandated automatic cancellation of registration for existing registered rental business operators when their mandatory rental period ends.
The problem arises when existing lease contracts remain after automatic cancellation. For registered rental dwellings, even if the tenant does not separately exercise the right to request contract renewal during the mandatory rental period, it is difficult for the landlord to refuse renewal. The industry says that while rental-business status and tax benefits disappear, lease contracts and tenant protection measures continue to apply, creating cases where landlords have to continue renting at below-market rates.
◇ 2018 mass registrations reach maturity, becoming a variable for the jeonse and monthly rent market
The Democratic Party is revisiting the automatic cancellation issue because large volumes are reaching maturity starting this year. In particular, the eight-year long-term rental dwellings registered in 2018 are reaching the end of their mandatory rental periods in sequence.
The Moon Jae-in administration actively encouraged the registered rental business operator system in its early days. During the Aug. 2, 2017 measures, Minister Kim Hyun-mee of the Ministry of Land, Infrastructure and Transport urged owners of multiple homes to sell their houses or register as rental business operators. The government also presented a policy to provide tax and financial benefits upon registration as a rental business operator. As a result, the number of newly registered rental business operators increased from 57,000 in 2017 to 148,000 in 2018. The number of newly registered rental dwellings more than doubled during the same period from 190,000 units to 382,000.
However, after the system was abolished in 2020, registered rental business operators lost their status automatically when the mandatory rental period ended. There are concerns that if landlords without tax benefits sell their dwellings or choose to move in themselves, existing tenants' housing insecurity could grow. With jeonse and monthly rent listings shrinking and rents rising recently, automatic cancellation of registered rental dwellings could become another variable in the lease market.
Seong Chang-yeop, head of the Korea Association of Rental Housing Owners, said, "As tax benefits are cut off, the likelihood has grown that landlords will sell their houses or demand that existing tenants move out for owner-occupation," adding, "In a situation with a shortage of jeonse and monthly rent listings, automatic cancellation of the mass registrations from 2018 could shock the lease market." He said, "These side effects were raised even during the July 10, 2020 measures, but legislation proceeded without sufficient supplements, and over time the problems are becoming reality."
Seo Jin-hyung, a professor in the Department of Real Estate Law at Kwangwoon University, said, "If the approach of amending the law every time a side effect occurs is repeated, policy credibility falls," adding, "The system should be revised with consideration for both landlords' tax benefits and tenants' housing stability."