Public rental housing units, with an option to be owned at the end of a ten-year obligatory rental period, started to be constructed in Pankyo New Town from May, 2006. When they were rented to tenants, any guidelines for calculating prices relating to the prospective conversion of public rental housing for sale had not been established except for an upper limit therefor. In June 25, 2009, the regulation governing the obligatory rental period was relaxed. If a public rental housing business and a tenant agrees to make conversion of a rental housing unit for sale after the obligatory rental period reaches a half of the period, an earlier conversion than the expiration of the obligatory 10-year period could be made. However, the regulatory relaxation raised a question.
When the concerned parties agree to make an earlier conversion, the most important matter is to decide a price for conversion. However, since appropriate guidelines for calculating such price did not exist, only the provision prescribing that such a conversion could be made only if both of the parties reach an agreement had been applied to the transactions of publicly-built rental housing units, which is quite a similar way in transacting privately-built housing units. A problem arising in such cases was that public rental housing business operators, who were supposed to work for the pubic interest, pursued their profits and there was no good faith principle shown in the process For instance, conversions made earlier than the expiration of the ten-year period in August 2015 were based upon the prices relating to conversion of public rental housing units for sale (appraisal prices) in which the public rental housing entity unilaterally asked tenants to pay for public rental housing units constructed at A3-2 block in Pankyo new town. In comparing and analysing profits gained by the public rental business entity and by the tenants, it turned out that the business entity gained a net profit (343,370,000 won) while the tenants lost (-53,640,000 won). This type of early conversion system had provided rental business entities an opportunity to hit a jackpot in taking advantage of tenants’ weakness. In the name of constructing public rental housing, the ownership of housing sites from public institutions was transferred to the rental business entity in exchange for 65 ~ 85 percent of the costs to prepare housing sites. The State neglected that those business entities had been sought their profits, which would be almost like the abandonment of governmental authority This study suggests securing a normal profit, which is 15 percent of construction costs, as the guidelines for conversion at the expiration of an obligatory rental period. The rental business entity can end up being paid depreciation costs, rental deposits, and increased rents incurred during the obligatory rental period in addition to the normal profit guaranteed. As a result, the total profits gained from the sale in lots of rental housing can be 1.4 times larger than those gained from sale in lots of privately-built housing. When applying this proposal to conversion earlier than the expiration of an obligatory rental period, securing a profit rate not exceeding 50 percent shall be provided in addition to the guaranteed reasonable profit rate of 15 percent. If restriction not to exceed the total max profit of 22.5 percent (= 15 percent + 7.5 percent) is imposed in consideration of depreciation costs and increased rents during the obligatory rental period, such restriction may refrain the business entity from gaining potential profits occurred when earlier conversion is deliberately delayed by the rental business entity. At the expiration of a obligatory rental period, the same rule of the maximum 22.5 percent of profit rate can be applied.
Securing a normal profit suggested in this study has an advantage as a total solution to resolve issues, which have neutralized the Rental Housing Act so far, regarding the exploitation of tenants caused by earlier conversion, the threat of livelihood that tenant might to face during an obligatory rental period, rent increase, the selection and evaluation of appraisal business entities, management and supervision conducted by a relevant Sis, Guns, or Gus, and most of all, conflicts caused in allocating benefits between public rental housing business and tenants. In particular, the proposal can be an alternative to contribute in accomplishing the purpose of the provisions of Article 21-3 (Reexamination of Regulation) of the Enforcement Rule of the Rental Housing Act.