"Gap Investment Crackdown Dries Up Jeonse Supply... Anxiety Grows Ahead of Fall Moving Season [Real Estate AtoZ]"

Proportion of Monthly Rentals for Seoul Apartments Rises After Loan Restrictions
"Lease Market Sacrificed to Cool Down the Sales Market"

Apartment Complex View from Namsan, Seoul

"Currently, there are no available jeonse listings I can connect you with. No one is putting properties on the market, and as loans decrease, there are also fewer people looking for jeonse." (Representative of Real Estate Agency A, Daehyeong-dong, Mapo-gu)

"Existing jeonse tenants are generally renewing their contracts, but listings are extremely scarce. If you are searching for jeonse, it seems more advantageous to sign a contract immediately rather than waiting for more options." (Representative of Real Estate Agency B, Sangdo-dong, Dongjak-gu)

The government has effectively blocked gap investment (buying homes with jeonse tenants in place) by limiting the jeonse loan cap for homeowners to 200 million won as part of the September 7 real estate measures. As gap investment, which plays a role in supplying jeonse units, becomes more difficult, supply is shrinking. Consequently, there are concerns that tenant demand, which can no longer be met in the jeonse market, will inevitably shift to monthly rentals. Critics point out that this will increase housing insecurity for ordinary people who have no choice but to remain in the rental market.

Gap Investment Restrictions Lead to Decreased Rental Supply

According to the Financial Services Commission and other sources on September 10, the jeonse loan limit for single-home owners in the Seoul metropolitan area has been reduced to 200 million won. Previously, the jeonse loan cap was 200 million won for the Korea Housing & Urban Guarantee Corporation (HUG), 300 million won for Seoul Guarantee Insurance (SGI), and 220 million won for the Korea Housing Finance Corporation (HF). With the new measures, about one-third of those who have taken out jeonse loans in the metropolitan area will see their average loan limit reduced by 65 million won. Currently, there are about 52,000 single-home owners in the metropolitan area with jeonse loans. Among them, around 17,000 people-about 30%-borrowed amounts between 200 million and 300 million won.

With these measures, borrowing money for gap investment is now restricted. Homeowners can no longer purchase additional properties through gap investment and then move into another home using a jeonse loan. Previously, the government had also restricted gap investment through the June 27 measures, requiring those who take out mortgage loans to report moving in within six months. This means buyers are required to live in the homes they purchase, making it impossible to buy a home with a jeonse tenant in place or to rent out a home immediately after purchase.

Jeonse loans with conditional ownership transfer have also been banned. This was a product where banks would lend jeonse funds to tenants on the condition that the ownership of the property would change hands, typically used when the owner of a newly built apartment would pay the remaining balance with the tenant’s jeonse deposit. The intention behind restricting gap investment is to make it more difficult to buy homes with little money and beyond one's means by purchasing with a jeonse tenant in place. The government viewed this as one of the factors fueling market instability.

"Jeonse Prices Rising, Shift to Monthly Rent Accelerating"

As the supply of jeonse units decreases, the trend of switching to monthly rent is becoming more pronounced. With fewer jeonse listings, jeonse prices are rising, and those unable to afford these increases are being pushed into the monthly rental market. In addition, the government has reduced the loan limits for programs like the Bogeumjari Jeonse Loan for young people and lowered the jeonse loan guarantee ratio provided by HUG from 90% to 80% in the metropolitan area. The restrictions on jeonse loans are intended to curb increases in jeonse prices and, in turn, prevent rises in home purchase prices as the scale of loans expands.

According to the Korea Real Estate Board's Seoul apartment jeonse price index, the cumulative increase through July this year was 1.24%. This is significantly higher than the 0.54% increase in the metropolitan area and the 0.12% increase nationwide. Notably, since gap investment restrictions began in June, the rate of increase has accelerated, with Seoul apartment jeonse price index rising by 0.33% in June and 0.31% in July. In June, when the June 27 measures were announced, the proportion of monthly rental transactions among Seoul apartment rental deals was 42.3%, rising by 1.8 percentage points to 44.1% the following month.

Kwon Youngsun, team leader at Shinhan Bank's Real Estate Investment Advisory Center, commented, "Gap investment through loans has become extremely difficult, so among those approaching the real estate market for investment purposes, the trend of focusing on a single, high-quality property is likely to intensify. Jeonse prices will inevitably rise, and the shift to monthly rent will continue. In effect, the rental market has been sacrificed to some extent to cool down the overheated sales market."

Yoon Sumin, real estate specialist at NH Nonghyup Bank, said, "It appears that the system is being overhauled to gradually phase out jeonse in the rental market. Both the decrease in demand due to reduced jeonse loans and the decrease in supply from curbing gap investment are occurring simultaneously, so monthly rent prices are expected to rise going forward."