Real estate prices have been rising for 57 consecutive weeks in Seoul. Real estate prices are also rising across the country, such as in Sejong City. The biggest reason for the rise in real estate prices is that real estate investments have a higher return than stock investments and bank deposits. However, as the price of real estate rises, tenants become poorer. This is because when real estate prices rise, the price of yearly leases and monthly leases rise as well. Population and property demand are increasing in the Seoul metropolitan area. As long as property demand is increasing, real estate prices will increase too. To prevent a vicious cycle, the National Assembly has announced the Three Lease Laws. The Three Lease Laws consist of the yearly lease and monthly lease reporting system, the yearly and monthly lease capping system, and contract renewal claim. So how do the Three Lease Laws claim to prevent real estate speculation and stabilize yearly lease prices?
The yearly lease and the monthly lease reporting system requires that the landlord and the tenant report the details of monthly lease transactions within 30 days from the date of the transaction. It was proposed to promote transparent information sharing on the real estate and rental market. The reporting system will take effect in June 2021 and will be the first step to be implemented, followed by the yearly lease and the monthly lease capping system, and contract renewal claim. When the yearly lease and monthly lease reporting system is implemented, the income of all landlords' will be transparent. The landlord will have to pay income tax accurately, and will not be able to evade taxes.
The contract renewal claim will allow the tenant to extend the contract for another two years after the existing contract is completed. Usually, the decision as to whether a contract would be extended or not was usually decided one to six months before the end of the contract. The landlord was free to refuse the tenant's request for renewal of the contract, but now they won’t be able to refuse with the contract renewal claim. Contract extensions can be revoked only if the landlord or their immediate family has informed to actually reside to the tenant. The immediate family of the landlord or landlord themselves must than actually reside there for two years. In the case of a false residence, the evicted tenant can claim for compensation for damages from the landlord. However, the tenant can give notice to terminate the contract at any time if the period of the contract has not been more than two years.
The yearly lease and the monthly capping system limits the renewal of a contract price to increasing less than 5 %. The landlord will be limited when increasing the lease rate when the contract renewal claims adds an additional two years. The yearly lease and the monthly lease capping system and the contract renewal claim will be applied retroactively. A retrospective application is a past application being adjusted to follow the currently enacted law. Therefore, landlords who are under contract will suffer losses in the short term because the lessor is required to extend the contract for another two years if the current tenant requests it.
Many experts expect the yearly sale of leases to decrease rapidly over the next three to four years but then increase again over time. The landlords will have to cope with more legal and economic risks and taxes. Therefore, a rise in yearly lease prices will be inevitable. However, some experts predict that the yearly lease prices will stabilize in the long-term. As the lease period has been extended, it will give enough time for the Seoul metropolitan area to increase the supply of yearly leases. An increased supply will mean lower prices. In addition, if taxes are imposed accurately through the yearly lease and the monthly lease reporting system, real estate speculation will be prevented. Only time will tell whether or not The Three Lease Laws will be successful.
By Seo Seong-il, reporter firstname.lastname@example.org
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