With Tax Hikes and Lease Law Enforcement, 'Jeonse Price Index' Hits Record High... "Landlords Prefer Monthly Rent"

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] Last month, nationwide jeonse prices reached an all-time high. This is analyzed to be influenced by rising house prices, strengthened real estate holding taxes, and amendments to the Housing Lease Protection Act.

The Bank of Korea expects this upward trend in jeonse prices to continue for the time being, with one of the main reasons being the decreasing trend of jeonse due to landlords' preference for monthly rent.

Currently, with the average interest rate on fixed deposits at commercial banks being only 0.8% per annum, landlords prefer monthly rent because they can receive an amount equivalent to 4-6% of the jeonse deposit as monthly rent.

According to the Bank of Korea's economic statistics system on the 9th, the nationwide housing jeonse price index compiled by KB Kookmin Bank recorded 100.898 last month (base 100 = price level in January 2019). The survey covered 31,800 apartments, 2,500 detached houses, and 2,000 row houses.

This is the highest since the statistics began in January 1986, and considering the significantly lower jeonse prices before 1986, it is effectively a record high.

In response to a written inquiry from Assemblyman Yoo Kyung-jun of the National Assembly's Planning and Finance Committee last month regarding "housing sales prices and jeonse price outlook," the Bank of Korea replied that "factors driving up jeonse prices outweigh those pushing them down."

Although jeonse supply is expected to decrease due to landlords' preference for monthly rent, the Bank of Korea diagnoses that jeonse demand is likely to remain high due to increased borrowing capacity for jeonse loans from falling interest rates and waiting for subscription to new town supply housing.

The "landlords' preference for monthly rent," cited by the Bank of Korea as the background for the decrease in jeonse supply, is closely related to market interest rates.

As of the 8th, the fixed deposit interest rates for two years at the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?range from 0.48% to 1.1% per annum. The 1% level requires meeting several strict preferential conditions, so it is effectively an era of "0% deposit interest rates."

The average interest rate on bank savings deposits based on new transactions in June, compiled by the Bank of Korea, was only 0.88% per annum.

Conversely, from the tenant's perspective, monthly rent is naturally less advantageous than jeonse in the current low-interest environment. As of the 8th, the jeonse loan interest rates at the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?range from 1.84% to 3.81% per annum.

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