The government said it will expand support for project financing (PF) related to non-dwellings and logistics centers. It also promised to work to restore the dwelling construction ecosystem, including swiftly supporting changes in the use of land when needed during development. It disclosed a plan to consider excluding the "5% rule," which allows landlords who have operated rental businesses for more than 20 years to raise rents by up to 5% annually upon contract renewal.
At a policy briefing jointly hosted on the 21st by the Korea Housing Association, the Korea Housing Builders Association, and the Korea Developer Association (KODA), Jang U-cheol, Director General for Housing Policy at the Ministry of Land, Infrastructure and Transport, conveyed the government's position to the industry.
Director General Jang said, "Even if they are the same PF, non-dwellings and logistics centers have relatively low delinquency rates," and "we will continue to monitor with financial firms, builders, and financial authorities and provide necessary support."
Concerns that PF outside dwellings, such as logistics centers, is becoming the epicenter of PF distress have persisted from 2024 to recently. Last year, Angang Construction filed for court receivership due to PF distress at a logistics center, and the Coupang logistics center in Oryu-dong, Incheon, among others, reportedly fell into a loss-of-benefit state and is proceeding with a sale process. This is interpreted as an intention to block such market concerns and prepare support measures.
At the briefing, there were also calls for changing the use of sites related to development projects. A developer pushing a land-for-land compensation project in the Geomam Station area public dwelling district in Incheon requested a swift change of use from urban support facility land supplied through land-for-land compensation to mixed-use residential-commercial land. Land-for-land compensation refers to compensating with other land within the project district, instead of cash, when land is expropriated for public utilities (such as roads, housing site development, and industrial complex creation).
In response, Director General Jang said, "Warning lights are flashing due to a shortage of dwellings, and we are clearly aware of the problem that changes in use are blocked by regulations," and "if related cases are filed with the difficulty support center, we will consult with relevant agencies to find solutions."
On rent regulations for rental business operators, he signaled deregulation. Director General Jang said, "Rental business operators are subject to two regulations at the same time: the 5% rule and the 95% of the initial nearby market rate (rent)," and explained, "for 20-year rentals, we will rationalize the rules so that when tenants change, rents can better follow nearby market rates by excluding application of the 5% rule and requiring compliance only with the 95% rule relative to nearby rents."
For public-supported private rentals, both the 5% rule and the 95% rule apply. The 5% rule is a regulation that allows rent to be raised by up to 5% annually upon contract renewal. The 95% rule is a regulation that sets the initial rent at 95% or less of the nearby market rate. The problem is that when these two regulations apply together, even if the tenant changes with a new contract, there are cases where the rent cannot be raised to the market rate, and the operator's profitability deteriorates. This means it will be eased only for 20-year long-term rental dwellings.
Director General Jang said, "If this happens, private capital and private investors will invest in REITs for long-term private rentals." About 200 people, including members of the three associations and media outlets, attended the event.