From possessing to rentingThe government has announced a new real estate measure to encourage homeowners and tenants to rent monthly instead of paying jeonse, the common rental agreements in Korea that require a large lump-sum deposit for apartments and houses of two years.
The new measure will reduce or scrap financial institutions’ loans for homeowners and instead offer tax breaks for both tenants and homeowners for monthly rents. The measure is aimed to help rein in sharp rises in jeonse rates due to a lack of supply.
Monthly rents have gained popularity over the last year. Still, the government has been late in reading the changing trend in the rental market. At first it increased loans for jeonse, trying to make them more affordable, but the move only fanned a rise in jeonse prices.
Korea’s unique jeonse agreements - which can be so expensive that they nearly equal the purchase price of a home - worked when residential prices were on the rise. But due to demographic changes and a slump in the housing market, many landlords cannot afford to give up on jeonse. With supply shrinking, jeonse prices rose sharply. Due to low interest rates, landlords began to prefer monthly rents because they cannot gain much from placing the deposit in banks. But the government missed the changing signs in the market and only worsened housing supplies by increasing bank loans for long-term rent deposits.
As of January, monthly rents accounted for nearly half of all housing agreements. It would be right for the government to ease the tax burden on tenants and renters and help to increase rent supplies.
Homes no longer should be about making money. They should instead serve their original function of offering the comforts of a stable and affordable living space. Instead of artificial inducement to change the market, the government must continue to increase rental supplies and leave the market to work out the demand naturally.
If homes no longer serve as a means of building assets and rent prices are kept stable, people naturally will prefer rents over ownership. Long-term mortgage and private capital also should be encouraged to invest more in the public rental market.
Taxation on monthly rental income also must be transparent. Without appropriate levies, tax benefits to tenants could be limited.
JoongAng Ilbo, Feb. 27, Page 30