Seoul Apartment Rentals: Increase in Jeonse and Decrease in Monthly Rent

Jeonse Transaction Share, from 65.3% in 2015 to 72.4% in 2019
"Near 0% Base Interest Rate May Cause Jeonse Shortage Due to Supply-Demand Imbalance"

[Asia Economy Reporter Kim Yuri] The proportion of jeonse (long-term lease) transactions in Seoul apartment rental markets has been increasing, while the proportion of monthly rent transactions has been steadily decreasing.

On the 23rd, Real Estate 114 analyzed the number of jeonse and monthly rent transactions from the Seoul Real Estate Information Plaza and found that the jeonse proportion hit a low of 65.3% (102,630 cases) in 2015, then rose to 72.4% (125,071 cases) by 2019. In particular, in 2018, when Seoul housing prices surged, the jeonse transaction ratio rose to the 70% range, showing an increased growth rate compared to the previous year.

The reason for the increase in jeonse transaction proportion is analyzed to be due to the steady increase in apartment move-in volumes in Seoul since 2015, coupled with the prevalence of gap investment aimed at capital gains during the housing price rise, which flooded the market with jeonse supply.

Conversely, the proportion of monthly rent transactions in Seoul apartments decreased in inverse relation to jeonse. Among types, the decline in quasi-jeonse transactions was notable. Quasi-jeonse refers to monthly rent where the deposit exceeds 240 months' worth of rent, and because the deposit is large, conversion to jeonse is relatively easy. The proportion of quasi-jeonse transactions in Seoul apartments peaked at 50.1% (26,964 cases) in 2016 and steadily declined to 38.7% (18,485 cases) in 2019, driving the overall downward trend in monthly rent transactions. Real Estate 114 estimates that the ongoing low interest rate environment has increased demand among quasi-jeonse tenants to refinance with loans and switch to jeonse, leading to the decline in transaction proportion.

With the base interest rate dropping to the 0% range, the demand for jeonse in Seoul apartments is expected to expand due to monthly rent tenants refinancing to jeonse through loans, as well as demand postponing purchases due to loan regulations, economic recession, and future uncertainties. On the other hand, jeonse supply is expected to decrease as more landlords seek monthly rent income due to low bank interest rates and holding tax burdens. Kyunghee Yeo, Senior Researcher at Real Estate 114, said, "This year, about 40,000 apartment units will be supplied in Seoul, similar to last year, but many landlords are expected to move in without renting out their units to meet the two-year residency requirement for capital gains tax exemption, which raises concerns about jeonse price increases due to supply-demand imbalance." She added, "Measures are needed to prevent the burden on households from rising jeonse prices."

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