On September 28, 2015, the former Rental Housing Act was fully amended, to be reborn as the Special Act on Private Rental Housing (the "Private Rental Housing Act"), which went into effect on December 29, 2015.
The Private Rental Housing Act was established in furtherance of the so-called "New Stay Policy" which was initiated by the Korean government from early 2015 with the aim of encouraging companies in the private sector whose business is to supply high quality rental units to individuals on a large-scale. Such business model is often referred to as a "corporate-type housing rental business." The Private Rental Housing Act provides comprehensive regulations based on the New Stay Policy.
1. Description of the Private Rental Housing Act
Outline - Easing of Regulations on Private Rental Housing
Pursuant to the enactment of the Private Rental Housing Act, the regulatory system regarding the housing rental business has been structured as follows: the housing rental business has been divided into the private sector and the public sector, the regulation on the private sector has been greatly relaxed to give more incentives to private rental business entities to supply rental houses and the regulatory control over the public sector has been transferred from the former Rental Housing Act to the Special Act on Public Housing and is separately carried out.
B. Deregulation of Eligibilities for Moving into Rental Houses
Previously, a tenant, in order to be eligible for moving into rental housing, whether in the private or public sector, was limited to 'those who do not own a house' and to a certain scope as notified by the Ministry of Land, Infrastructure and Transport.
However, in accordance with the enforcement of the Private Rental Housing act, in the case of private rental housing, a rental business entity is entitled to determine the eligibilities for tenants and the method of selecting tenants and other matters relating to the supply of private rental housing.
C. Deregulation of Initial Rent
Previously, the initial rent for rental housing was not allowed to exceed a standard amount as determined by the Ministry of Land, Infrastructure and Transport.
However, under the Private Rental Housing Act, in the case of a private rental housing, a rental business entity can now freely decide the initial rent or security deposit.
D. Removal of the Duty of "Conversion to Sale"
Previously, a rental business entity had to sell its corporate-type rental housing after a certain rental period elapsed (the so-called "Conversion to Sale"), and had to preferentially select as the buyer a tenant that met certain legal requirements.
However, the Private Rental Housing Act now grants rental business entities the option to decide whether or not to sell the relevant corporate-type rental housing even after the expiration of the minimum rental period as required by law (four to eight years depending on the type of rental housing), and if the rental business entity chooses to sell the relevant rental housing, it may freely select the buyer.
E. Deregulation of Creation of Security Interest
Previously, a rental business entity was prohibited from providing as security rental housing that the rental business entity constructed and rented (the so- called "constructed rental housing") prior to the Conversion to Sale.
The Private Rental Housing Act now allows rental business entities to provide as security a constructed corporate-type rental housing even prior to the Conversion to Sale.
F. Easing of Other Regulations on Development and Construction
The Private Rental Housing Act provides grounds for the competent governmental agency to ease regulations on usage of land and on construction if a rental business entity constructs a certain type of corporate-type rental housing.
2. Outlook on the Private Corporate-type Rental Business and Legal Issues
At the time when the Korean government announced the New Stay Policy on January 13, 2015, the Korean government's will to implement the policy was not evident, and some were skeptical of the degree of deregulations or the outlook on the Korean corporate-type housing rental market. However, the Korean government continued to push forward with the New Stay Policy, and the Korean construction market is actively responding to such drive.
The Korean government also announced a policy for raising the upper limit of the floor area ratio from 300% up to 500% if a corporate-type rental housing is supplied in an area where deteriorated houses are concentrated, showing its desire and intent to proceed with the New Stay Policy. So long as the Korean government continues to proceed with the New Stay Policy, the private rental business is expected to be further facilitated.
General regulations will be relaxed on land, construction and development projects relating to the New Stay Policy, and it is essential to have a better understanding of the relaxed regulations and to take advantage of such environment in the process of conducting relevant business.