Speeding Up the 'Lease 3 Laws'... Even More Volatile Jeonse Prices

Outline of the Three Lease Laws... Scheduled to Pass in July National Assembly
Good Intentions but Concerns Over Side Effects... Jeonse Prices Soar

(Photo by Yonhap News)

[Asia Economy Reporter Moon Jiwon] As the outline of the Three Lease Laws emerges, anxiety in the metropolitan area’s jeonse and monthly rent market is growing stronger. Although controversial issues such as 'unlimited extension of jeonse and monthly rent contracts' and 'application to new contracts' are expected to be excluded for now, analysts say that the proposals already discussed have a significant impact on the market. Landlords have already been withdrawing listings, causing jeonse prices to surge daily.

According to the National Assembly and government on the 28th, the Democratic Party of Korea is planning to pass all bills related to the Three Lease Laws within the July extraordinary session. Since unstable conditions persist with jeonse and monthly rent prices soaring in Seoul and the metropolitan area after the push for the Three Lease Laws, there is a strong will to implement them as soon as possible.

The basic framework of the Three Lease Laws is expected to allow one 2-year extension after the initial 2-year contract (contract renewal right), and to cap rent increases at 5% (jeonse and monthly rent ceiling system). The 'unlimited contract extension' proposed by Democratic Party lawmaker Park Jumin is considered too radical and will be excluded, and the plan to apply the 5% cap to new contracts will be reviewed in the long term.

However, if the tenant’s current contract is still valid, the right to request contract renewal will be recognized regardless of the number of extensions. In other words, even tenants who have already extended their contract once and lived for 4 years can claim the contract renewal right again. Because of this, the industry expresses dissatisfaction, saying it excessively infringes on landlords’ property rights. Landlords who intended to change tenants after contract expiration will inevitably have their plans disrupted.

Also, the rent increase cap at renewal will be basically set at 5%, but local governments will be allowed to set a lower cap within 5% through ordinances. In this case, in areas like Seoul with high jeonse prices, the cap is likely to be set below 5% according to inflation rates. While this aims to reflect regional differences, it may cause fairness issues as landlords’ returns will vary by region.

The government plans to allow landlords to refuse tenants’ contract renewal requests if the landlords wish to reside in the property themselves, considering opposition to the Three Lease Laws, but many point out that this too will inevitably have side effects. The government is reviewing applying a 'statutory damages claim system' so that tenants can easily receive compensation if it is found that landlords falsely refused contract renewal rights.

As the Three Lease Laws become more concrete, jeonse prices are fluctuating even more. Landlords are busy preparing countermeasures such as converting jeonse to monthly rent or raising deposits before the law takes effect. The government has stated it will implement the Three Lease Laws promptly to reduce side effects, but since it is difficult to apply the law if landlords notify termination 2 to 6 months before contract expiration, many tenants are expected to suffer damages.

Jeonse prices in Seoul and the metropolitan area are skyrocketing. According to real transaction data from the Ministry of Land, Infrastructure and Transport, the jeonse price of an 84.9㎡ unit at Raemian Mapo Riverwell in Yonggang-dong, Mapo-gu, rose by 90 million KRW from 800 million KRW in just two weeks.

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