The 'short-term registration dwelling' system is making a comeback after 5 years, but the market reaction is tepid. To stimulate the supply of private rental dwellings, including multi-family homes and villas, the government has decided to offer tax benefits starting next month for registering non-apartment dwellings as rental properties. However, in a market with a learned behavior of 'apartment invincibility,' there are concerns that the business viability of non-apartment rentals may be low, leading to weak demand for rental business ventures. Past changes in government encouragement for rental registrations have contributed to skepticism about the revival of this system.
According to the Ministry of Land, Infrastructure and Transport on the 30th, the government will reintroduce the 6-year short-term registration dwelling system for non-apartments starting from the 4th of next month.
This system allows non-apartment dwellings, such as villas and multi-family homes, to be registered as short-term rental dwellings, applying the single household, single dwelling exception. Tax benefits, including exemption from the comprehensive real estate tax aggregation, will be applied. It was introduced in 2017 and abolished in 2020.
Although the short-term registration dwelling system with tax benefits has revived, market reactions have been quiet. This is because apartments are excluded from the types of dwellings eligible for this system. Dwellings that qualify for tax benefits upon registration as short-term rental properties include those with a construction type official price of 60 million won or less, and 40 million won or less for purchased types (20 million won or less outside the capital area).
The Ministry of Land, Infrastructure and Transport excluded apartments from the short-term registration rental dwellings to restore the residential ladder and stabilize housing prices through the revitalization of the non-apartment market. However, amid a growing preference for apartments following lease fraud, there are concerns that demand for purchasing non-apartment properties for rental purposes is low. Even if investing in multiple non-apartments, it may not be able to surpass the yield of a 'strong single unit' apartment.
The lack of consistency in policy has also led to decreased market trust, contributing to the subdued response to the revival of the short-term registration dwelling system. This system was criticized for being used as a means of speculation and tax evasion during periods of skyrocketing housing prices and was abolished just 5 years ago. At that time, rental businesses saw reduced tax benefits, and after the mandatory rental period, their business registrations were automatically canceled. The uncertain direction of real estate policy from the next government is also increasing uncertainty in the short-term registration rental market.
Lee Eun-hyung, a research fellow at the Korea Construction Policy Research Institute, noted, 'The introduction of the short-term registration dwelling system is positive, but due to the learned behaviors experienced in past governments and uncertainties regarding future market conditions, it is difficult to expect immediate effects from the system.'
Another real estate industry insider said, 'I agree with the direction that private rental businesses should increase,' but added, 'However, as the target is limited to non-apartments such as villas and officetels, it remains uncertain whether as many will enter the rental business as in the past.'
The government explained that the decision to limit non-apartment dwellings was a response to market concerns about speculative demand associated with the reintroduction of the short-term registration dwelling system. An official from the Ministry of Land, Infrastructure and Transport stated, 'Given the need for increased rental dwellings for market stabilization, this system was limited to non-apartments to prevent it from being misused as a speculative tool by multiple homeowners,' adding, 'We will strive to maintain consistency in our policies to normalize the market.'