On July 29, ‘The Three Lease Act’ was passed by the National Assembly of Korea. The full official name of this law is ‘Revisions to the Housing Lease Protection Act’. The law was enacted in 1981. This amendment aims to stabilize the prices of rent and to protect the middle class. However, the revised bills caused controversy among various social classes. To figure out why the revision of this Act is controversial, understanding the meaning of real-estate in Korea is crucial.

In South Korea, real-estate issues are always a hot potato since real estate has a unique position in the context of the Korean society. First and foremost, real estate is regarded as the most efficient method of investment, especially for the middle class. Second, it is also the main factor in determining the economic class. Why does real estate have these particular meanings in Korea?

First, real-estate speculation, which began in the late 1960s, contributed to establishing the perception of considering real estate as a means of accumulating wealth. Real estate speculation appeared gradually after the mid-1960s and then began full-scale with the development of the national territory. At that time, companies were mostly the main players rather than individuals. Public speculation began in the mid-1970s as the construction of apartments increased. After 1967, those who wanted to gain wealth became speculators. As the government policy changed, the number of people who have made large sums of money from real estate has increased and the real estate speculation boomed in different regions. Furthermore, real estate is a physical asset which is strong in inflation. It means real estate is a stable property.

Second, the ownership of real estate is the most important measure of wealth in S. Korea. Currently, real estate accounts for 76.8 percent of total assets per household. However, ownership of real estate is not the only factor that determines social classes. The value of the property itself determines the detailed economic hierarchy. By the type of housing, the average total asset of apartment residents is 2 to 3 times higher than that of a detached house, row house, or multiplex housing. Besides, as the proportion of the upper class living in apartments increases, the social classes are often divided by apartment brand or whether the apartment is owned or rented.

Thus, the cultures surrounding real-estate are complex and always controversial in S. Korea. In this social atmosphere, ‘The Three Lease Act’ was revised to better protect the rights of tenants. The act focuses on three things. First, the tenant may demand the landlord that he or she will extend a two-year contract at least one time, but only when the tenant asks it from six months to a month before the lease contract expires. Second, when renewing a lease contract, the landlord cannot raise the monthly rent by more than five percent. Lastly, the amendments include a requirement to report the details of the rental contract to the local government within 30 days after the conclusion.

The various meanings of possessing real estate in S. Korea has influenced the formation of distinct real-estate cultures. These real-estate cultures, which are easily found in S. Korea, became the characteristic of Korean society. They include ‘Jeonse’, ‘preferences of apartment housing’, and ‘pre-sale system of apartments’.

-Jeonse

‘Jeonse’ is a rental system where the tenant hands over a fixed amount to the real estate holders and leases the real estate for a certain period without paying rent. The deposit is returned to the tenant at the end of the contract. Jeonse appeared in the 1970s when the number of people coming up to Seoul from the provinces increased. The rapid population growth and the lack of housing in Seoul stimulated apartment construction. In the 1970s, for ordinary people, it was not easy to make a large sum of money to deal with real estate. The financial business did not develop to the current level, and it was difficult to loan money due to the high-interest rate caused by the rapid economic growth rate at that period. Thus, using Jeonse system, a person who wanted to own real estate could receive a portion of the house price from the tenants, allowing him or her to buy real estate with small assets. Furthermore, the owner of the property could employ Jeonse deposit as a reinvestment fund for higher returns. The tenant was able to get the principal back after the contract was over. Jeonse has become widespread because it is a win-win system for both landlords and tenants.

-Preference for apartment housing

A lot of Koreans prefer an apartment as a living space these days. In 2015, the Statistics Korea presented that apartments ranked the first with 48.1 percent of the housing types that Koreans want to live in. One of the reasons why Koreans like apartments is that apartments are the most common type of housing in highly urbanized Korea. As of 2018, the ratio of apartments to the number of houses is 56.5 percent. In other words, the surroundings with many apartments have led to the preference of apartments. As mentioned above, apartments are also the most effective investment means for the middle class in S. Korea. In the 1970s, owning apartments stood for incorporation into the middle class, and over time, apartments have become a representative way of the accumulation of wealth. Moreover, apartments are convenient to live in since they have a lot of amenities due to their dense population. Additionally, the cost and manpower of managing apartments are low. The convenience of living space is also the other reason why Koreans prefer apartments.
 

-Pre-sale system of apartments

‘Pre-sale system of apartments’ is an institution to distribute the apartments to the occupants in advance before the construction of houses is completed. The construction company requires residents to pay about 80 percent of the housing price before completion to cover the construction costs. In S. Korea, most of the apartment sales are operated under the pre-sale system. This is due to the S. Korean government’s allowance in 1977, that was introduced to meet the demand for housing. The government permitted the pre-sale method on under the premise that the post-sale system is imposed. However, as most construction companies adopted a low-funded pre-distribution method, the current pre-sale system has become entrenched. For the consumers, the pre-sale system has some advantages: it allows them to buy the new apartment at relatively low prices because it is purchased before completion, and it is possible to pay in installments. The system makes it comparatively for the tenants relatively less burdensome in preparing to live in expensive real estate. However, tenants can be exposed to economic loss if the construction company goes bankrupt because they purchased the building in advance of completion. Also, the apartment buildings can be damaged because of poor construction.

In S. Korea, people who dream of getting their own house and those who want to own real estate for speculation are having a tug-of-war. That is the reason why the real-estate policy is always a hot potato. The government wants to distinguish between those who just need space to live or are trying to enrich themselves through speculation. The government enforces and scraps various policies to protect the former by suppressing the latter. To achieve this goal, the real estate policy from a macroscopic perspective is needed.