Why Have Landlords Who Can't Return Deposits Increased? "Financial Strain Due to Government Regulations"

HUG Jeonse Deposit Return Guarantee Subrogation Payments Surge
Experts Say "Possible Impact of Consecutive Gap Investment Regulations"

Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Moon Jiwon] The amount paid by guarantee institutions on behalf of landlords who failed to return tenants' jeonse deposits has reached an all-time high. Despite significant increases in sales and jeonse prices, especially in the metropolitan area, the surge in guarantee accidents is likely influenced by the worsening financial conditions of so-called 'gap investors' who purchased homes with jeonse and loans amid the government's strengthened real estate regulations. Some analysts also suggest that the economic downturn in major industrial hub cities could be a contributing factor.

According to the Housing and Urban Guarantee Corporation (HUG) on the 7th, the total amount of subrogation payments under HUG's jeonse deposit return guarantee reached 301.5 billion KRW from January to August this year, already surpassing last year's total of 283.6 billion KRW. As of the end of August, the number of subrogated households was 1,516, exceeding last year's total of 1,364 households.

The jeonse deposit return guarantee is an insurance policy that tenants subscribe to in case they do not receive their jeonse deposit back from the landlord after the contract expires. If the landlord fails to return the deposit, HUG first compensates the tenant (policyholder) and later exercises its right of recourse against the landlord.

Launched in September 2013, this product has seen an annual increase in subrogation amounts since performance tracking began in 2015. While the amount was only 3.4 billion KRW in 2017, it surged to 58.3 billion KRW the following year and soared to 283.6 billion KRW last year. If this trend continues, the subrogation amount could rise to 450 billion KRW by the end of this year. The number of guarantee accidents also reached a record high, with 1,654 cases reported by August, surpassing last year's 1,630 cases.

HUG's Subrogation Amount Already at Record High with Four Months Left in the Year

The increase in HUG's subrogation amount indicates a growing number of landlords unable to return jeonse deposits to tenants. HUG states that since insurance subscription performance is increasing annually, the subrogation amount naturally rises as well. In fact, the insurance issuance amount (number of households) and guarantee accident amount (number of households) reached record highs last year at 30.6443 trillion KRW (156,095 households) and 344.2 billion KRW (1,630 households), respectively. This year, as of last month, these figures stand at 22.9131 trillion KRW (112,495 households) and 325.4 billion KRW (1,654 households), indicating a strong possibility of breaking annual records soon.

In Seoul and other areas where apartment jeonse prices have risen sharply this year, it is analyzed that HUG's deposit subrogation likely concentrated on detached, multi-family, and row houses in the outskirts of the metropolitan area and provincial regions rather than apartments. For example, last year, a landlord who purchased hundreds of villas in Hwaggok-dong, Gangseo-gu, Seoul, through gap investment failed to return deposits, causing a series of incidents.

Ham Youngjin, head of the Zigbang Big Data Lab, explained, "In provincial areas, older apartments or multi-family houses do not experience significant asset value fluctuations. Guarantee accidents may have occurred frequently in regions with high jeonse rates among such properties, and if one person made multiple gap investments, a chain reaction of deposit rollovers could have led to accidents."

Stricter Gap Investment Regulations Cause Financial Strain for Multi-Homeowners... Provincial Downturn Also a Factor

There is also an analysis that the government's recent significant tightening of regulations, including restrictions on loans for multi-homeowners and corporations and increased tax burdens, may have had an impact. Professor Shim Gyo-eon of Konkuk University's Department of Real Estate said, "Despite little downward pressure on sales and jeonse prices recently, the sharp increase in subrogation amounts may be because those who took out excessive loans for gap investments are unable to return jeonse deposits due to government regulations blocking additional loans." Ham added, "Guarantee accidents may increase due to default properties emerging as a result of regulations on gap investments by multi-homeowners."

There is also speculation that major provincial industrial hub cities such as Changwon and Ulsan, struggling with economic downturns, have influenced the situation. These cities' housing markets have been hit hard by employment market contractions. As the number of landlords unable to find new tenants increases, subrogation payments have likely risen accordingly.

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