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(LEAD) S. Korea to tighten rules on home lease contracts to stabilize 'jeonse' deals

All News 10:31 August 19, 2020

(ATTN: ADDS remarks, details in last 4 paras)

SEJONG, Aug. 19 (Yonhap) -- South Korea will tighten some rules on home lease contracts to stabilize "jeonse" deals, Finance Minister Hong Nam-ki said Wednesday.

Jeonse is a home rental arrangement unique to South Korea, in which tenants pay a large sum of money as a deposit instead of paying monthly fees.

Amid record low interest rates and measures to restrict jeonse contracts for certain types of apartments, a growing number of homeowners want to receive monthly rental fees instead of jeonse.

Currently, a homeowner is required to receive 4 percent of a jeonse contract as monthly rental fees if the owner seeks to convert the jeonse contract into a monthly rental contract.

Hong said the government will lower the ratio to 2.5 percent, hoping to encourage homeowners to keep their jeonse contracts.

The soaring home prices in the greater Seoul area have been a headache for policymakers, as President Moon Jae-in's approval rating has nose-dived amid public uproar.

Finance Minister Hong Nam-ki speaks at a meeting on property markets on Aug. 19, 2020. (Yonhap)

Last month, the government announced its toughest measures yet to rein in rising housing prices, as a series of steps, including tax hikes and loan regulations, failed to put the brakes on soaring home prices.

Earlier this month, the government announced it will supply 132,000 homes, including 110,000 homes in Seoul, in the capital city and the neighboring areas by 2028 by easing restrictions on the construction of residential buildings.

The eased rules allow redevelopment projects of aging apartment complexes to increase their floor area ratio (FAR) to between 300 and 500 percent to build more units from the current 250 percent.

FAR is the ratio of the total plot area to the overall building area and is determined by the size of the plot and width of the road in front of the plot.

The rules also allow such redevelopment projects to build 50-story apartment buildings in the greater Seoul area, far higher than the existing 35-story height restriction.

Hong said the government is also investigating speculative investments on homes worth more than 900 million won (US$759,429).

Separately, Hong ruled out the possibility of a fourth extra budget, saying that reserve funds are sufficient to support recovery projects on flood damage.

The government "should draw up an extra budget if recovery funds are insufficient, but we can cover the costs of recovering through reserve funds," Hong said in a Facebook post.

The government's reserve fund is currently worth about 2.6 trillion won.

In July, the National Assembly passed the third extra budget worth 35.1 trillion won to mitigate the economic fallout of the new coronavirus pandemic.

kdh@yna.co.kr
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