Aegis Asset Management: "If Housing Sale Price Increase Slows, Jeonse Prices Will Rise"

[Asia Economy Reporter Park Jihwan] Aegis Asset Management Research Center announced on the 19th that it has published a report analyzing the relationship between jeonse prices and sale prices of housing.

The report first compared the nature of housing deposits domestically and overseas. It stated that overseas deposits are used as a security measure to temporarily pay rent instead of monthly rent in case of restoration or unpaid rent.

It also explained that while overseas deposits are about 1 to 3 times the monthly rent, in Korea, jeonse is generally more than 40 times the monthly rent or only a deposit without monthly rent.

It explained that domestic deposits or jeonse are used by landlords as a means to reduce investment equity. In other words, when buying a house worth 1 billion KRW, instead of buying it with 600 million KRW capital and 400 million KRW loan, it is purchased with 300 million KRW capital, 500 million KRW jeonse deposit, and 200 million KRW loan. The less money spent on purchasing the house, the higher the yield from the increase in sale price. The profit remains the same, but the investment capital decreases.

The problem arises when the rise in sale prices slows down. When the sale price increase slows, landlords’ profits decrease, so they raise the jeonse deposit to recover investment capital or convert part of the jeonse deposit into monthly rent to compensate for income, resulting in the appearance of ban-jeonse (half-jeonse) contracts.

From the tenant’s perspective, when the rise in sale prices slows, asset values fall, so they prefer to live in jeonse rather than buying. Ultimately, due to the influence of landlords and tenants, when the rise in sale prices slows, jeonse prices increase and ban-jeonse appears.

Looking at the Seoul apartment jeonse-sale price index, it was found that during periods when the sale price increase slowed, jeonse prices showed a high increase. When jeonse prices rise significantly, it ultimately provides factors for gap investment, which in turn acts as a factor raising sale prices.

The report explained that the relationship between jeonse and sale prices is strongly observed in apartments with a high proportion of jeonse and a high deposit ratio compared to monthly rent. Next in order were multi-family houses, detached houses, and officetels.

An official from Aegis Asset Management explained, "To prevent the unique jeonse structure in Korea, different from overseas, from transferring into rises in sale and jeonse prices, considerations are needed not only from a policy perspective but also from a supply perspective."

This content was produced with the assistance of AI translation services.