The real estate market is difficult to read. Owning a home is also challenging. Government policies are equally complex. This is where the difficult view of real estate begins.
Let’s start with a number. In 2018 alone, 150,000 private rental units were newly registered. Even until 2020, around 100,000 units entered the system each year. However, after the July 10, 2020, measures that abolished registered apartment rentals and short-term rentals, new registrations sharply declined. In 2023, there were 47,000 units, 40,000 in 2024, and 29,000 last year. This is a fifth of the peak. According to the Ministry of Land, Infrastructure and Transport, the registered rental stock as of the end of March this year was 958,000 units. This number continues to decrease.
While the stock is dwindling, the rental market has heated up. The apartment lease supply-demand index in Seoul reached 126.7, the highest since early 2021, and the monthly rent increase rate in Seoul from January to May this year was the highest recorded. Of the 8.47 million rental households nationwide, public rentals account for 23.2%. The rest is supported by private rentals, which have been losing stock for three consecutive years.
The reasons to revive private rentals are clear. Yet, both the government and landlords hesitate to take action. Registered rentals are decreasing, and the burden of monthly rent is increasing, but why is no one willing to return to the past?
Earlier this year, the president announced plans to gradually eliminate the exemption from capital gains tax for registered rentals, and relevant departments even considered the continuation of the non-apartment rental business. However, a recent shift in sentiment has been detected among government departments and the ruling party.
At a private rental housing forum held in the National Assembly on July 8, the Ministry of Land stated, “Both public and private rentals need to move forward together.” The government, which was reviewing the elimination of benefits, has begun to seek revitalization measures again.
It is not wrong to say that the direction has changed. It is more accurate to say that market figures have drawn the government back to the table. The problem lies in what comes next. The prescriptions discussed at the forum frequently mentioned the term 'restoration.' This includes reviving the early conversion to sale that has disappeared and extending the automatically canceled registration status. However, reviving something is different from simply returning to the past.
Two Hesitations and the Tenants
There are reasons for the government's hesitation in front of private rentals. It stems from the memory of the activation of registered rentals in 2017. At that time, the government attempted to attract multi-home properties into the system by simultaneously reducing acquisition tax, property tax, comprehensive real estate tax, and capital gains tax. However, criticism arose that tax benefits were being used as a means for gap investment and tax avoidance, leading to the system being overturned within three years. It is understandable that a government that has been burned once is hesitant to offer benefits again.
Landlords share similar concerns. They registered only to see the system abolished three years later and received unexpected notices for comprehensive real estate tax. There is no guarantee that conditions will not change again if they register now, even within the same government. For those who have witnessed a shift from benefit elimination to revitalization in just a few months, the promises of the system have already lost their effectiveness.
The situation for tenants is different. In the past, registered rentals provided tax cuts for landlords, but they did not adequately guarantee how affordably and safely tenants could live. Registered rentals did not necessarily mean affordable and safe rental housing. Therefore, it is difficult for tenants to be confident that the benefits of this revitalization will come to them.
The government worries about the controversy over preferential treatment, landlords fear policy changes, and tenants suspect that benefits may bypass them. As each party takes a step back for different reasons, the burden falls on tenants who are facing soaring monthly rents. What is needed now is not to determine whose hesitation is justified, but to design a plan that can move all three parties forward.
Returning Means Bringing Back Flaws
The real issue with the system in 2017 was not just the size of the benefits. It was that the benefits were tied solely to the 'registration' switch. As long as one registered, they could charge market rates for rent and still receive the same reductions. The only protection for tenants was a 5% annual increase cap, which merely restrained the speed of rent increases without lowering the level.
Benefits were granted based on registration status, without questioning whether tenants were actually paying less. Restoring this structure would also bring back its flaws.
Similar failures have been repeated in other private rentals. One example is corporate rentals, known as News Stay. In 2015, the government provided land, low-interest loans, floor area ratio, and tax incentives to encourage supply, but did not set initial rent standards and only applied an increase cap. After the mandatory period ended, there was no decision on whether to convert to sale. Although public funds were involved, the question of how affordably tenants could live and who would benefit from development profits was left unanswered.
In late 2017, the system was restructured into public-supported private rentals, and conditions were belatedly added to limit initial rents to 90-95% of market rates. Currently, about 18,000 units of News Stay nationwide are awaiting the outcome of conversion to sale after the mandatory period expires. The cost of not setting conditions from the beginning is now being billed eight years later.
Another example is the Seoul Youth Safe Housing initiative. The city provided private developers with zoning upgrades, floor area ratio relaxations, and financial support in exchange for receiving rental housing at lower than market rates. The idea of exchanging benefits for rental conditions was correct, as evidenced by the high competition for demand.
However, while carefully designing what to offer landlords, the city left it to the market to determine how to protect tenants' deposits. In some projects, buildings were auctioned off due to the developer's debt issues, and in places where the obligation to join a guarantee insurance was not met, tenants' deposits were tied up. Rising construction and financing costs worsened project viability, leading to a sharp decline in private participation, with no permits issued last year.
News Stay left unanswered how affordably tenants could live, and the Youth Safe Housing initiative neglected to ensure that the deposited funds would be protected. To revive private rentals, both conditions must be met: tenants should be able to rent at lower than market rates, and they should be able to receive their deposits back without worry. If either condition is lacking, the system will not last long.
Benefits Should Be Based on Performance, Not Registration
The new system should evaluate two performance metrics: how much rent has been reduced and how safely deposits have been protected.
First is affordability. Support should vary based on how much rent has been reduced, not on registration status. The key is not the size of the benefits but the slope of the support.
An example is France's Loc'Avantages program. If rent is set 15% below market rates, landlords receive a 15% tax credit on rental income; if 30% below, they receive 35%; and if 45% below, they receive 65%. The more they reduce rent, the more they get back. Landlords enter into a minimum six-year agreement with the state, adhering to tenant income limits and housing energy performance conditions. Landlords choose how much to lower rent, and the state assigns value to that choice. Support is tied to the actual benefits tenants receive, not merely to registration.
In the U.S., the low-income housing tax credit has turned tax credits into a mechanism for private capital procurement, requiring a certain amount of housing to be supplied to households below the median income. However, issues have arisen regarding rent increases or conversions to other uses after the mandatory period. This indicates that it is essential to design not only the creation of affordable rental housing but also how long those conditions will be maintained.
A similar framework existed in South Korea. In 2024, the government introduced a new type of long-term private rental that differentiated regulations and support based on autonomy, semi-autonomy, and support types. The more regulations imposed, the greater the support. However, even the strongest support type only limited initial rents to 95% of market rates, which was too close to be considered affordable. The framework was established, but the slope was gentle.
The safety of deposits should also be tied to support conditions. For instance, projects where guarantee membership is not confirmed or where the sum of senior claims and deposits exceeds a certain percentage of the property value should have tax, financial, and floor area ratio support suspended. Regular checks on guarantee membership and senior claims should be conducted, and if standards are violated, support should be suspended or previously granted benefits reclaimed.
The extent of rent reduction can be verified through numbers, and the safety of deposits can be confirmed through registration and guarantee membership. Support must be linked to these two performance metrics for benefits to finally reach tenants.
What to Restore and What to Rebuild
These criteria can bring together those advocating for the revival of private rentals and those criticizing tax benefits for multiple homeowners.
The government will have a basis to prevent preferential treatment controversies. If it can be confirmed that tenants are actually living affordably and safely in proportion to the tax cuts or relaxed regulations, it can explain who the benefits are for. Support is not given merely for registration but is contingent on achieving policy goals.
For landlords, predictability will increase. If the level of rent reduction, agreement period, and corresponding tax and financial support are tied to contracts, the conditions already established are less likely to be easily shaken, even with a change in administration. What is needed is not necessarily large benefits but stable benefits that do not change over the promised period.
Civil society has criticized the tax benefits for registered rentals because they have concentrated on benefits for multiple homeowners and tax avoidance rather than affordable rental housing supply and tenant protection. The demand to retain benefits only when affordable rental housing supply and tenant protection are met does not conflict with the revitalization of private rentals. Benefits are granted not for mere registration but for providing affordable rentals and protecting deposits.
The discussions around early conversion to sale or extending registration status should also be filtered through these criteria. It is essential to assess how much these measures will lower housing costs for tenants, how long rental housing will be maintained, and how deposits will be protected. If the benefits to tenants are calculated, it becomes a system; if not, it is merely a benefit for businesses.
The reasons to revive private rentals are clear. The declining stock and soaring rents illustrate this. However, what is needed now is not a return to the system of eight years ago. It is about filling the conditions that were left empty back then.
The issue is not whether to revive registered rentals. The real question is whether tenants will actually pay less in rent and receive their deposits back in full. Without these criteria, restoration will merely be a repetition of the past.
* This article has been translated by AI.
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