Will the Jeonse-to-Monthly Rent Conversion Rate Be Lowered? Kim Hyun-mi Says "Need to Discuss Whether Current Standard Is Appropriate"

Kim Hyun-mi, Minister of Land, Infrastructure and Transport, hinted at the possibility of lowering the current jeonse-to-monthly rent conversion rate of 4.0%. Minister Kim made this remark on the 3rd during the National Assembly's Legislation and Judiciary Committee meeting.

Minister Kim said, "When this law was created, the base interest rate was about 2.5%, so an additional 3.5% was added to it, but I think there needs to be a discussion on whether this standard is still appropriate now."

The jeonse-to-monthly rent conversion rate is the appropriate rate set by the government when converting a jeonse (long-term deposit lease) to a monthly rent. Under the current Housing Lease Protection Act, it is defined as 'base interest rate + 3.5%'. Since the current base interest rate is 0.5%, the conversion rate is 4.0%.

In 2016, the government changed the conversion rate calculation method from applying 'four times the base interest rate' to the current method of 'base interest rate plus a certain value (base interest rate + α)', setting the α value at 3.5%. However, with the current era of ultra-low interest rates, there are concerns about whether the standard set four years ago is still appropriate.

Minister Kim's remarks suggest the government may lower the jeonse-to-monthly rent conversion rate by reducing the α value below 3.5%.

Regarding the recent increase in landlords converting jeonse contracts to monthly rent, Minister Kim said, "The fundamental cause is the interest rate," adding, "From the landlord's perspective, the yield on operating jeonse is low, so there seems to be a lot of conversion to monthly rent."

However, Minister Kim expressed the view that there will not be a rapid conversion of existing jeonse contracts to monthly rent as much as the market fears. He said, "The gap investment ratio in Gangnam, Seoul, rose to the 70% range because multi-homeowners used jeonse deposits for gap investments," adding, "Multi-homeowners need a large sum of money for gap investments, so there are limits to the trend of converting to monthly rent."

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