High Jeonse Price Ratio Raises Concerns of Reverse Jeonse Crisis... Villa in Danger

Shinhan Bank Recently Plans to Suspend Jeonse Loans for Villas
Economic Downturn Due to COVID-19... Aiming to Reduce Loan Risks
High Jeonse Ratios in Villas... Concerns Over Reverse Jeonse Crisis During Downturns

[Asia Economy Reporter Moon Jiwon] Recently, a major commercial bank attempted to halt jeonse loan financing for non-apartment properties but reversed the decision following public backlash. This incident has heightened concerns that the reverse jeonse crisis, caused by falling house prices, could intensify in the multi-family and row house markets. Since the price gap between sale and jeonse prices is smaller than that of apartments and sales demand is relatively low, there is a risk that if the economic downturn deepens, these markets could become a trigger for real estate defaults.

According to industry sources on the 14th, Shinhan Bank initially decided to suspend jeonse loans for multi-family and row houses starting from the 15th but later canceled the plan. Officially, the reason was to prioritize limited funds for companies and small business owners affected by COVID-19, but it was interpreted as an attempt to reduce high-risk loans.

Multi-family and row houses have historically faced reverse jeonse issues during real estate downturns due to their high jeonse-to-sale price ratios. According to KB Kookmin Bank, the average jeonse rate for multi-family and row houses in Seoul last month was 71.7%, significantly higher than apartments at 57.4%. In some parts of the metropolitan area, jeonse rates approach 90%, leading to substantial gap investment demand where buyers finance purchases through jeonse deposits. This structure makes them more vulnerable in the event of a full-scale real estate downturn.

An official from a commercial bank said, "From the bank’s perspective, falling collateral prices are the biggest risk management concern, so there is apprehension about jeonse loans for row houses and multi-family homes."

On the surface, the recent non-apartment transaction market is not performing poorly. According to data from the Seoul Real Estate Information Plaza, the monthly sales volume of multi-family and row houses in Seoul was 4,812 in February, 3,620 in March, and 3,203 last month, showing a declining trend. However, compared to the same period last year when monthly transactions ranged from 2,100 to 2,900, these figures are relatively high. This suggests active gap investment, especially among younger buyers, due to the possibility of small-scale investments.

However, experts caution that non-apartment products have a relatively high supply compared to demand, so investors should be cautious. Ahn Myung-sook, head of the Real Estate Investment Support Center at Woori Bank, said, "From a supply perspective, non-apartments such as multi-family, row houses, and single-family homes have been supplied more than apartments. While apartment demand remains steady, older homes have limited sales and rental demand, which could lead to sharper-than-expected price declines."

As the government plans to support small-scale housing redevelopment projects, there is speculation that small apartment complexes could replace demand for row houses and multi-family homes. The Ministry of Land, Infrastructure and Transport recently announced measures to strengthen the housing supply base in the metropolitan area, including easing floor area ratio restrictions and parking requirements in small-scale redevelopment zones to improve project feasibility.

If conditions such as public rental housing donations are met, small-scale reconstruction projects will have their floor limits relaxed from 7 to 15 floors. This has led to strong expectations that previously overlooked standalone apartments could become more active in the market.

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