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The Peninsula

The Friction Between Employment and Property

Published January 4, 2021
Author: Korea View
Category: South Korea

This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.

What Happened

  • A national petition calling for the reduction of rents on commercial properties received 148,000 signatures within a week.
  • In response, the ruling party proposed a draft bill limiting rent on commercial properties when the social distancing mandate is at level two or higher.
  • The government offered to provide tax benefits to property owners who voluntarily reduce rents.

Implications: As the government tries to distribute the economic cost of the COVID-19 pandemic, policymakers face the difficult choice between protecting jobs and shielding property owners’ nest eggs. With SMEs responsible for employing a majority of the country’s workers, there is a broad public agreement that these firms have to be protected. Accordingly, the government seeks to transfer some of their operating costs to the landowners through rent reduction. However, this faces opposition from people who made investments in real estate as a hedge against market uncertainty. 75% of the nation’s household assets are held in real estate because of the perception that it is a protected retirement asset. As a consequence, polls also show that nearly half of the public opposes mandatory rent reduction.

Context: In the United States, local governments protected SMEs by placing a moratorium on commercial property evictions. The Coronavirus Aid, Relief, and Economic Security Act (CARES) and Coronavirus Act 2020 provided an additional four to six month grace period before landowners could terminate contracts citing non-payment of rent. In Germany, the government-mandated 50% discount on rent when stores are closed due to public health guidelines. Moreover, landowners must accept rent deferments until June 30, 2022. In Canada, the government reduced rent by 75% and offered to subsidize 50% of the total rent if renters pay the remaining 25%.

Korea View was edited by Yong Kwon with the help of Sophie Joo and Chris Lee.

Picture from the flickr account of photostudio81

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