100,000 Residences Face Enforcement Fines for Failure to Convert to Officetel

Around 100,000 residences in South Korea are facing hefty fines for not converting their living accommodation facilities into offices within a month. These facilities, which have been used for residential purposes, are required by law to be converted into officetels (a combination of an office and a hotel) and registered as accommodation businesses. Failure to comply will result in significant enforcement fees. Currently, only 1.1% of the 103,820 living accommodation facilities nationwide have been converted into offices.

The government’s decision to regulate living accommodation facilities comes after criticism that these facilities were not subject to legal regulations, unlike traditional housing. However, the lack of coordination between different government ministries and local governments has resulted in inconsistent regulations, making it difficult for owners to adhere to the standards. The Ministry of Land, Infrastructure and Transport focuses on fire-fighting facilities and parking spaces, while the Ministry of Health and Welfare controls the operation of accommodation facilities.

Living accommodation facilities, also known as serviced residences, became increasingly popular due to rising apartment prices and tax regulations on multiple property ownership. These facilities were exempt from heavy acquisition and transfer taxes and could be reported as primary residences. Between 2018 and 2021, over 10,000 living accommodation facilities were completed each year.

Owners and residents argue that the government’s regulations are delayed and difficult to comply with. To convert a living accommodation facility into an office, consent must be obtained from all buyers, and certain standards such as parking and hallway width must be met. Due to these requirements, some believe that reconstruction is necessary. The Ministry of Land, Infrastructure and Transport maintains that living accommodation facilities were never meant for residential purposes and that recognizing them as such would lead to parking and overcrowding issues.

As the deadline for compliance approaches, the prices of living accommodation facilities are dropping. Enforcement fees can range from 10 million to 40 million won, depending on the facility’s price. Owners and residents are calling for the government to provide a viable solution to the current situation.

In conclusion, the lack of coordination between government ministries and local governments has resulted in a complex and challenging environment for owners and residents of living accommodation facilities. The government’s regulations, intended to bring these facilities under legal control, have created confusion and financial burdens for many individuals.

100,000 residences were hit with fines a month later

It is illegal if you do not convert to officetel.

When used for residential purposes

Need to pay tens of millions of money earned in enforcement fees

Live accommodation facilities that are not registered as accommodation businesses or that have not been repurposed as offices will be subject to a large enforcement fee after about a month. The picture shows a living accommodation facility in Gyeonggi-do. /Reporter Choi Hyuk

The end of the grace period for changing the use of living accommodation (residences) to offices, which are accommodation facilities but have been used for residential purposes, is a month away. Around 100,000 households that use residential accommodation facilities for residential purposes without changing their use have been forced into a situation where they have to pay tens of millions of enforcement money every year.

According to the industry on the 12th, starting from the 15th of next month, the government intends to impose compliance fines on live accommodation facilities that have not changed their use and are not registered as accommodation facilities. According to the Korea Real Estate Development Association, the number of living accommodation facilities is 103,820 households in 592 complexes nationwide. Of these, only 1,173 households, or 1.1%, have been reset into offices.

Living accommodation facilities with cooking facilities are not included in the number of houses and there are no regulations such as restrictions on resale, so more than 10,000 households have been supplied each year since the late 2010s. As it was identified as an ‘easy investment’, the government revised the Enforcement Decree for the Building Act in 2021 and set a two-year guideline period to change the use to offices, etc. If you want to convert an already completed living accommodation facility into an office, it is difficult to do so without rebuilding it, as it is necessary to increase the number of car parks or widen the width of the hallway for fire fighting purposes.

It is estimated that the enforcement fee is equivalent to tens of millions of money earned, depending on the price of living accommodation. According to the Building Act Enforcement Decree, enforcement fines are set at 10% of the standard rateable value of the building from the date the first rectification order is issued. The standard market value of an 83㎡ residential accommodation facility built in Namyangju, Gyeonggi Province is 170.07 million won, and 10%, or 17 million, must be paid as a performance penalty. The enforcement fee for the unique 83㎡ living accommodation facility being built in Incheon is estimated to have won 21.8 million to 25.43 million.

In the industry, it is noted that regulations that are difficult to adhere to produce a large number of offenders. A resident of a residential accommodation facility in the metropolitan area expressed concern, “When a performance penalty is imposed, financial companies can decide that it is an illegal building and start repaying the loan.”

Government: “Residence is illegal in the first place” vs. Landlord: “Are you asking me to move out of the house I live in?”
Houses are not included, heavy taxes are excluded … More than 10,000 houses are completed every year, making it popular.

The reason why the owners of more than 100,000 homes of living accommodation facilities across the country are forced to pay tens of millions of earned compliance fines is because living accommodation facilities have been in the blind spot of regulations between government ministries. The government took steps to regulate accommodation in late 2021 in response to criticism that, unlike housing, they are not subject to legal regulations. However, as the Ministry of Health and Welfare, the Ministry of Land, Infrastructure and Transport, the Ministry of Public Administration and Security, and local governments manage it separately, there is growing criticism that regulations are inconsistent and that the government will apply standards that are difficult. to adhere to, creating a multitude of criminals.

○ Lack of a consistent management system

There is an analysis that the ‘living accommodation crisis’ results from a lack of a consistent management system within government ministries. The Ministry of Land, Infrastructure and Transport regulates fire fighting facilities, parking spaces, etc. in accordance with the Building Act. The Ministry of Health and Welfare controls the operation of accommodation facilities in accordance with the Public Health Management Act. In this structure, local governments received move-in reports from people living in live-in accommodation facilities, causing owners to misunderstand that their residences were legal.

Live accommodation facilities, commonly known as ‘serviced residences’, were first introduced during the 1988 Seoul Olympics, and demand increased ahead of the 2002 Korea-Japan World Cup. As apartment prices soared during the Moon administration Jae-in and strengthening tax regulations based on the number of homes owned, became popular as an alternative product. As it is not legally included in the number of houses, it is exempt from heavy acquisition tax and transfer tax. Also, as it was possible to report move-in, the buyer thought it was a house he could live in and buy. Between 2018 and 2021, more than 10,000 homes were completed each year.

Living accommodation facilities are accommodation facilities under the Building Act and the Public Sanitation Management Act, so in principle, owners cannot live there directly. However, no ministry or local government managed separate living accommodation facilities. Developers and sales companies used the term ‘accommodation facilities’ in contracts and sales advertisements and advertised that housing was actually possible. During the National Assembly’s inspection in 2020, when attention was drawn to ‘illegal housing’, the Ministry of Land, Infrastructure and Transport began to prepare regulatory measures. If they wanted to continue using the residential accommodation facilities that had already been sold as if they were their homes, they were given a grace period of two years to change their use to offices.

○ “The government must open the way out properly”

Owners and residents of live accommodation facilities claim that the government has delayed the regulation, but they protest that it is a regulation that is difficult to adhere to. In order to change the use of a living accommodation facility to an office, consent must be obtained from all buyers and standards such as parking and the width of the hallway must be met. This is why some say it is impossible unless a new building is erected. Of the total of 103,820 living accommodation facilities, only 1.1% (1,173 households) were converted into offices.

The Ministry of Land, Infrastructure and Transport, which is responsible for building law, maintains the view that living accommodation facilities are originally accommodation facilities and that their use as residential facilities is illegal from the start. The explanation is that if it is recognized as a residential facility, it will cause problems with parking problems and overcrowded classes in nearby areas, causing losses to those who follow the law. In addition, the situation is that it is difficult to relax the regulations on corridor width and fire fighting standards because they are related to safety.

It is also difficult to register it as an accommodation facility as required by the Ministry of Land, Infrastructure and Transport. This is because at least 30 households must be gathered together and given to a consignment company. Even if it is registered as an accommodation facility, it is not clear whether it is possible to live in a live accommodation facility as a home. This is because the Ministry of Health and Welfare controls whether it is actually being operated as an accommodation facility, and local government carries out the actual inspection.

According to the industry, compliance fines can range from 10 million to 40 million won depending on the price of living accommodation. As enforcement fees approach, living accommodation prices are falling. The asking price for the exclusive 84㎡ Lotte Castle Le West area in Gangseo-gu, Seoul was 1.56 billion won, 50 million won lower than the sale price (1.61 billion won).

Correspondent Seo Ki-yeol/Lee In-hyuk

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