Why moving into a simple officetel can be frustrating

Why moving into a simple officetel can be frustrating. February. 09, 2013 08:06. yunjung@donga.com.

A single man, 37, recently tried to move out of his parents’ home and begin living alone at an officetel, a small apartment unit in a multi-purpose building with residential and commercial units. A small snag thwarted his attempt, however.

After checking about 50 officetels for rent in northern Seoul, he learned that no landlord was willing to allow him to report his moving in to authorities because doing so would result in more taxes on the landlords.

Real estate agents also urged him to give up moving into a rental officetel, saying failure to report moving into an officetel was a rule and that he could not find one to rent if he insisted on doing so.

Officetels are growing popular as a new type of residence for one or two people, but tenants are facing problems living in them.

○ All about taxes

An officetel is defined as a residential or business unit, depending on how the tenants report their residency to the government. Owners of business-purpose officetels are exempt from universal property tax and can get a refund of valued-added tax of 10 percent of the construction expenses.

But owners of residential officetels face higher taxes because they are defined as owners of multiple homes. Unless they register their as entrepreneurs running a rental housing business, they must pay comprehensive real estate holding tax and get no refund of value-added tax. Even if they get the refund, they have to repay the tax if they use their properties for residential purpose before completing the required rental period.

So most officetel owners first register their properties as for business purposes before leasing them to tenants without reporting to the authorities. This is why they do not want tenants to report their moving in to authorities.

A 33-year-old man living in an officetel in Seoul`s Mapo district complained that because he could not register his residency there, all of his mail was delivered to his parents’ home in Gwangju, where his residency is registered. He said he could not even go to his hometown to vote in the parliamentary and presidential elections last year.

A tax accountant said many officetel owners avoid registering their tenants’ residency because of lax audits by tax authorities on such practices.

○ High brokerage fees, less tax incentives

Officetel tenants are also charged higher fees by real estate agents than those for people living in apartments. The fee for a residential unit is lower than that charge for a non-residential property. Officetels, which are defined as “semi-residential” properties, are considered non-residential facilities.

The real estate fee on a regular home is 0.3 to 0.5 percent of rent, while that on an officetel is up to three times higher. “Officetels are popular because they are as convenient as apartments, but some tenants complain about higher real estate fees,” a real estate agent said.

Officetel rent is excluded from tax deductions on rent paid by salaried workers. Last year, tax authorities lowered the thresholds for the deductions to benefit more salaried workers.

Tenants of officetels, however, do not qualify for this because officetels are not considered homes. A white-collar worker, 28, said many young salaried workers and newly married couples rent officetels but get no tax breaks.

Yang Ji-young of RealToday, a private research agency for the real estate market, said, “As single dwellers have become a major type of household, officetels are major residential facilities for them. The government should revise the tax system to handle the grievances of officetel tenants."