Jeonse Prices Rise by 40 Million Won... Common People’s Dream of Homeownership Blocked

Frustration Among 30s and 40s Non-Homeowners
"Are We Meant to Live as Lifelong Jeonse Tenants?"

[Asia Economy Reporter Kim Min-young] The hardships of non-homeowning jeonse tenants continue. Jeonse prices have risen sharply, but due to recent real estate regulatory policies raising the loan threshold, the dream of owning a home has become even more distant.

According to the 'Major Region Jeonse Market Instability Check' report released on the 19th by KB Management Research Institute, recent successive real estate regulatory policies and the spread of the novel coronavirus infection (COVID-19) have led to a contraction in the sales market in major regions and an increase in jeonse demand, resulting in rising jeonse prices.

In particular, jeonse prices have shown an upward trend centered on the Seoul metropolitan area and major metropolitan cities, causing households approaching their contract renewal period to require additional funds.

According to the report, as of the end of April, the national jeonse price index rose by 0.6% compared to the previous year. Especially, the Seoul metropolitan area (1.2%) and five metropolitan cities including Daejeon, Daegu, Gwangju, Busan, and Ulsan (0.8%) showed an upward trend. Jeonse prices in Gyeonggi Province fell by 0.9% last year but rose by 0.9% from January to April this year. Non-metropolitan areas have maintained a downward trend in jeonse prices along with the contraction of the sales market.

As of the end of April, the average apartment jeonse price in Seoul (based on 84㎡ exclusive area) was 480 million KRW, up by 30 to 40 million KRW compared to April 2018, two years ago. The Seoul metropolitan area averaged 310 million KRW, up by 10 million KRW compared to two years ago, and among the five metropolitan cities, Daejeon rose by about 20 million KRW.

Looking at detailed regions, in Seoul's Gangnam and Seocho districts, an additional 80 to 90 million KRW is expected to be needed on average for contract renewals going forward. In Daejeon Jung-gu, apartment jeonse prices rose by 38 million KRW to currently 250 million KRW. KB Research Institute explained that this is mainly due to a significant shortage of jeonse supply overall and many units converting to monthly rent due to low interest rates.

[Image source=Yonhap News]

KB Research Institute identified the mismatch between jeonse supply and demand as a factor causing instability in the jeonse market.

They analyzed that prolonged COVID-19 and the resulting domestic economic recession have led to expectations of housing price declines, strong government regulations, and a preference for new constructions, all reducing sales demand. Meanwhile, landlords facing increased tax burdens are converting jeonse contracts to monthly rent or semi-monthly rent, causing a 'jeonse shortage.'

The supply-demand mismatch leads to increases in jeonse deposits, intensifying the burden on non-homeowning low-income tenants to prepare jeonse funds, deepening their worries.

Meanwhile, strengthened loan regulations have further narrowed the path for low-income people to purchase homes. Following the June 17 real estate measures, most areas in the Seoul metropolitan area and parts of Daejeon and Cheongju were designated as adjusted target areas and speculative overheating districts, lowering the loan-to-value ratio (LTV) to 40-50%. Loans, which previously reached 60-70%, have sharply decreased, making it more difficult for real buyers lacking cash to secure homes, causing dissatisfaction.

Additionally, to prevent gap investments, if a house priced over 300 million KRW is purchased in a speculative overheating district, the jeonse loan will be immediately recalled. This has caused real buyers who intended to buy homes with jeonse anticipating price increases to suffer losses. Especially among the 30s and 40s age groups, non-homeowning real buyers are angrily asking, "Are we supposed to live as jeonse tenants for life?"

Jeonse price increases are expected to continue for the time being. Son Eun-kyung, a research fellow at KB Research Institute, said, "With economic uncertainties expanding and new housing supply limited, as real buyers choose jeonse, jeonse prices in Seoul and some parts of the metropolitan area are expected to maintain a slight upward trend," adding, "Jeonse prices generally follow sales price trends, so if the sales market contraction prolongs, the jeonse market may also contract."

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