Jeonwolse Conversion Rate Reduced from 4% to 2.5% (Summary 1)

Government Proposes Supplementary Measures Less Than 20 Days After Lease Law Enforcement
Intends to Block Rent Conversion Due to Regulations
Experts Warn of Excessive Market Intervention Side Effects
Landlords' Rental Income Expected to Drop Nearly 40%

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, is delivering opening remarks at the "3rd Real Estate Market Inspection Meeting of Related Ministers" held on the 19th at the Government Seoul Office in Jongno-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Kwangho Lee] Less than 20 days after the government implemented the Housing Lease Protection Act, which introduced the rent cap system and the right to request contract renewal, it has finally announced supplementary measures. As the market experienced a shortage of jeonse (long-term deposit lease) listings due to landlords increasingly switching to monthly rent, causing prices to soar, the government decided to lower the 'monthly rent (jeonse/monthly rent) conversion rate' applied when converting jeonse to monthly rent by 1.5 percentage points. However, concerns have arisen that with ultra-low interest rates keeping market deposit rates in the 0% range and the introduction of the contract renewal request right reducing the overall supply of jeonse and monthly rent listings, the government's artificial intervention in prices could only exacerbate market instability.

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, presided over the '3rd Real Estate Market Inspection Meeting' held at the Government Seoul Office on the 19th and stated, "Considering criticisms that the current 4% jeonse-monthly rent conversion rate accelerates tenants' shift to monthly rent and increases their burden, we have decided to pursue a downward adjustment of the monthly rent conversion rate."

Deputy Prime Minister Hong added, "Taking into account the opportunity costs on both sides, including tenants' jeonse loan interest rates, landlords' investment product yields, and mortgage loan interest rates, we plan to set the jeonse-monthly rent conversion rate at 2.5%." The government explained that the adjusted conversion rate considers a balanced approach between tenants and landlords and ensures that even when converting to monthly rent, the housing cost burden does not increase. The conversion rate is determined by adding a margin rate (3.5%) to the Bank of Korea's base interest rate (currently 0.5%). With the government's decision, the current 4% conversion rate will be lowered by 1.5 percentage points to 2.5%.

However, real estate market experts express concerns about potential side effects from excessive government market intervention. The consensus is that even the adjusted 2.5% conversion rate will not prevent landlords from switching jeonse contracts to monthly rent, given that commercial bank deposit rates are below 1%.

The meeting also discussed follow-up measures related to the implementation of the rent cap system and the contract renewal request right. Deputy Prime Minister Hong said, "To protect tenants from false contract renewal refusals, we will expand the right to access information so that tenants can view the status of housing move-in registrations and fixed-date certificates for a certain period even after eviction." Additionally, to resolve disputes that may arise during the transitional period of the system's implementation, the government plans to add six more dispute mediation committees to the current six within this year. They will also review ways to improve statistical surveys so that jeonse market statistics can cover both new and renewed contracts.

Regarding follow-up measures for expanding housing supply in the metropolitan area, Deputy Prime Minister Hong explained, "Reflecting the active intentions of many associations, we will select project sites within this year by holding resident briefing sessions in August and conducting public contests in September for public redevelopment." For public reconstruction, a 'Public Maintenance Project Integrated Support Center' will be opened within the LH Yongsan Special Headquarters this week to provide free preliminary consulting. For large-scale projects based on new sites such as the Taereung Golf Course, the government plans to complete research on major aspects of the metropolitan transportation measures within this year and finalize them through the Metropolitan Area Wide Transportation Committee's review in the first quarter of next year.

Deputy Prime Minister Hong stated, "Currently, we are conducting planned investigations into about 400 suspicious transactions involving high-priced properties over 900 million KRW, including transactions by minors, and about 150 suspicious transactions in land transaction permission zones and major overheated areas in the metropolitan area." He added, "Starting from the 21st, coinciding with the enforcement of the revised Real Estate Brokerage Act, we will monitor unfair representations and advertisements by brokers through the Korea Internet Advertising Foundation and take firm action against illegal activities."

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