Economic ministries fill out reform plan details

An array of government policies focused on structural reforms and deregulations were announced Tuesday and reported to the president.

The policies will try to improve conditions for contract workers and boost the amount of rental apartments in the country for the middle class.

Six ministries overseeing the national economy came up with detailed plans to strengthen the economy’s fundamentals and ramp up growth. As President Park Geun-hye mentioned in her New Year’s address on Monday, structural reforms will be carried out in four areas: the labor market, finances, the public sector and education.

Although the government proposed an outline last year, it lacked details.

In a joint press conference held by the Ministry of Strategy and Finance, Ministry of Land, Infrastructure and Transport, Ministry of Employment and Labor and three others, each ministry unveiled specific plans.

One of the policies that grabbed attention was boosting the supply of middle-class apartments for rent to be built by private companies. The program is dubbed “New Stay.” Apartments for rent that are being built by Samsung C&T, for example, will be named “Raemian Stay” to make them recognized as houses for rent by private companies.

The government will offer public land owned by the state or the Korea Land and Housing Corporation to private builders, and will expand tax and financial incentives for them.

“The housing rental policy should not be considered simply from the perspective of regulation,” Park said. “There should be a paradigm shift in our policy that allows private companies to participate.”

Private companies running apartment estates will also be able to offer ancillary services such as laundry services, day care, nursing care and home appliance rentals.

The government will require the private companies to act as landlords for those rental units for the first eight years at the least. After that, they can be put up for sale.

In Seoul, monthly rents will be between 800,000 won ($733) and 1 million won for an apartment of 135 square meters (1,453 square feet). In other areas, the government plans to set the average price at 600,000 won.

This is based on the Land Ministry’s calculation that the average monthly income of middle-class households is 5 million won. The ministry considered 20 percent of income to be an appropriate amount to be spent on rent.

Aggressive deregulatory moves will also be carried out in the tourism sector.

Four new duty-free shops and new hotels will open in Seoul to increase the total number of rooms by 5,000 by 2017.

As for reforms in the public sector, the Finance Ministry said public institutions will expand a performance-based salary system while phasing out the current seniority-based system.

Currently, only executives of public organizations are subject to the performance-based system. That will be expanded to employees who worked for seven years or more at public entities.

As part of labor market reforms, the Employment Ministry came up with a plan to give 2 million won worth of tax deductions to small companies that hire temporary workers of subcontractors. The ministry will also encourage small enterprises to introduce employee stock ownership. Personal accidents and injuries occurring during commutes will also be considered as industrial accidents and be covered by employment insurance.

Analysts were positive on some of the measures, particularly the expansion of rental units.

“It will be an opportunity to ramp up supply of homes for rent and manage them in a transparent manner,” said Shim Kyo-un, a real estate professor at Konkuk University.

“Tenants will feel less of a burden since the rents are fixed and managed by the government and there is no need to move out every two years,” said Park Seung-kuk, CEO of Life Tech, a private renter.

The housing construction industry welcomed the policy because it is bound to benefit it.

“Private construction companies wanted to take part in the rental market, which has been controlled by the government,” said Kim Dong-soo, an executive director at the Korea Housing Association.

But some questioned the effectiveness of the policy because many Koreans still prefer two-year jeonse contracts (long-term deposits) to monthly rents.

“There will not be many middle-class households that can take the brunt of 600,000 won to 800,000 won in rent while they are paying education costs and saving for post-retirement life,” said Lee Nam-soo, head of the private banking center of Shinhan Bank.

Some analysts said the government could consider adopting the traditional jeonse system for the rental market, or a hybrid system that combines the jeonse and monthly contracts to help reduce the burden for tenants.

BY Song Su-hyun, Lee Tae-kyung [ssh@joongang.co.kr]