Confusion in Jeonwolse, Great Chaos in 2 Years

Minister of Land, Infrastructure and Transport Kim Hyun-mi is attending the Government Policy Coordination Meeting held at the Government Seoul Office in Jongno-gu, Seoul on the 30th, listening attentively to the opening remarks by Prime Minister Chung Sye-kyun. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporters Yuri Kim and Onyu Lim] With the passage of the 'Three Lease Laws'?the Rent Increase Cap System, the Right to Request Contract Renewal, and the Lease Reporting System?becoming a foregone conclusion in the National Assembly, rapid changes in the rental market are plunging the market into chaos. In particular, concerns are spreading that even greater confusion in the rental market will intensify two years from now. Although the government will allow contract renewals for existing lease agreements to temporarily curb the initial surge in rents following the law's implementation, it is expected that once these renewed contracts expire, landlords will raise the previously suppressed jeonse (key money deposit) prices all at once. Critics argue that the government's retroactive application of the law is merely a temporary fix and not a fundamental solution to prevent side effects.

◆Inevitable Great Chaos Two Years Later When Existing Contract Renewals Expire

If the ruling party holds a plenary session of the National Assembly as planned on the afternoon of the 30th and amends the Housing Lease Protection Act, the Rent Increase Cap System and the Right to Request Contract Renewal will be immediately enforced following approval at the Cabinet meeting early next month.

In the frontline brokerage industry, since the new regulations will be retroactively applied to existing contracts, it is expected that the recent sharp rise in jeonse prices will somewhat stabilize immediately after the law takes effect. However, this is only a temporary measure, and concerns have been raised that the real problem will begin "two years later." Once the existing contracts, which have been renewed once after the law's enforcement, expire, landlords are highly likely to set prices for new lease agreements by preemptively reflecting not only the jeonse price increases over the past two years but also the anticipated increases over the next four years of the lease period. In other words, the side effects of the Three Lease Laws will fully materialize starting from the fall of 2022.

The recent surge in jeonse prices is also a result of adjustments to previously undervalued prices relative to market rates and the preemptive reflection of expected future price increases ahead of the Three Lease Laws' enforcement. According to KB Real Estate Live On, Seoul apartment jeonse prices rose by 1% month-on-month in July, increasing by 1.36% over two months. Compared to the beginning of the year, prices have jumped nearly 2% (1.93%). There is also speculation about landlords converting to monthly rent. This is due to restrictions on raising jeonse deposits amid low interest rates and the burden of increased property taxes. A significant portion of the tax increase is likely to be passed on to tenants.

Of course, if supply increases, the burden of taxes passed on to tenants could be alleviated. However, the market is already anticipating supply-demand instability. This is because the government's policy of 'one household, one home occupancy' is increasing requirements that landlords must live in the property themselves. The government and ruling party plan to submit an amendment to the Housing Act that imposes a mandatory five-year occupancy requirement immediately upon completion for homes subject to the price ceiling system, aiming to pass it during this National Assembly session. This makes it difficult to expect large-scale jeonse supply from large apartment complexes, which had previously acted as a buffer against jeonse price increases. A representative from real estate agency A in Sangil-dong, Gangdong-gu, said, "Even one-home owners must live in the house for two years before selling to qualify for capital gains tax exemption, so recently landlords are tending to move in first."

◆Intensifying 'Landlord vs. Tenant' Conflicts Amid Great Chaos Before Law Enforcement

With the law revision imminent, conflicts between landlords and tenants are escalating uncontrollably. Landlords are trying to raise jeonse prices by bringing in new tenants without contract renewal, while tenants are relying on the law and avoiding contact with landlords to hold out.

B, who rented out an apartment in Haengdang-dong, Seongdong-gu, Seoul, recently asked the tenant to increase the deposit by 50 million won ahead of the contract expiration at the end of November but received the response, "You know about the Three Lease Laws, right? You can't raise the jeonse deposit by more than 5%." B said, "I didn't even know such a law would be enacted during the previous contract. The market price has risen by 100 million won, but I can't even raise it by 50 million won," adding, "Above all, seeing the tenant's attitude like that makes me think I have to move in forcibly."

The division between landlords and tenants continues on internet cafes and social networking services. Currently, real estate communities are flooded with posts related to the Three Lease Laws. Inquiries range from landlords asking, "How do I send a certified letter to refuse renewal?" to unethical solutions like "Use major defects to evict tenants." Tenants also ask questions such as "How can I verify if the landlord's parents are actually living there?" creating an atmosphere where the Three Lease Laws are fueling conflicts between the two groups.

C, a 30-something corporate employee living in Seodaemun-gu, Seoul, said, "Nowadays, even the atmosphere at lunch has split between homeowners and non-homeowners," adding, "The current real estate situation is turning landlords and tenants into enemies."

Many tenants also resent the Lease Protection Act. They worry about the difficulty of finding new jeonse homes due to fears of renewal refusal and the possibility of sharp jeonse price increases in the future. E, a tenant whose jeonse contract at apartment H in Garak-dong, Songpa-gu, Seoul, expires in December, said, "I planned to move into a new apartment at a low price and increase the deposit as much as I could, but if the Three Lease Laws pass, the landlord has said they will move in themselves," adding, "I haven't been contacted yet, but I'm afraid I will eventually receive a renewal refusal notice."

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