Rising Jeonse Prices Expected Until Year-End... Increasing Housing Instability

September KB Jeonse Price Outlook Index 142.6
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Rising Jeonse Prices Raise Concerns Over 'Kkangtong Jeonse'

[Asia Economy Reporter Moon Jiwon] Since the implementation of the 'Lease 2 Act,' there is a forecast that the soaring jeonse prices will maintain their rapid rise at least until the end of the year. Although the government believes that the jeonse market will soon stabilize as the rate of increase is slowing down, there is an analysis that the housing instability for ordinary citizens and concerns about "empty shell jeonse" caused by the sharp rise in jeonse prices have already grown excessively.

According to the KB Monthly Housing Price Trend released by KB Real Estate Live On on the 28th, the jeonse price outlook index for Seoul this month recorded 142.6. This is the highest figure since the related survey began in January 2016. Compared to last December when the index was 117.3, it has risen by 25.3 points.

The jeonse price outlook index is a number ranging from 0 to 200, based on a survey conducted by KB targeting brokerage offices in each region regarding whether prices are expected to rise or fall. An index exceeding 100 means there is a high possibility that jeonse prices will rise in 2 to 3 months. According to the outlook of frontline brokerage offices, the upward trend is expected to continue at least until the end of the year.

The index fell to 105 in May when COVID-19 was spreading, but concerns about jeonse price increases rapidly expanded as discussions on the introduction of the rent ceiling system and the right to request contract renewal intensified, recording 129.9 in June. After the revised Housing Lease Protection Act was implemented at the end of July, the outlook index sharply rose to 140.2 in August and 142.6 in September.

In fact, in many parts of the Seoul metropolitan area including Seoul, cases where jeonse prices approach or surpass sale prices have recently appeared one after another. According to the Ministry of Land, Infrastructure and Transport's real transaction price disclosure system, a 49.77㎡ (exclusive area) unit in Cheongbaek, Wolgye-dong, Nowon-gu, Seoul, was sold for 225 million KRW on July 29, but a jeonse contract was signed for 195 million KRW on the 25th of last month, narrowing the gap between sale and jeonse prices to 30 million KRW. The jeonse-to-sale price ratio reached 86.6%.

In the case of a 14.5㎡ unit in Air Palace, Banghwa-dong, Gangseo-gu, it was sold for 108 million KRW on July 1, but the jeonse contract was signed for 110 million KRW on July 24. This means the jeonse price was actually 2 million KRW higher than the sale price.

“Empty shell houses,” where sale prices and jeonse prices have reversed, require tenants' caution because if house prices stabilize later, the owner may not be able to return the jeonse deposit even if they sell the house. If house prices enter a correction phase after the sharp rise in jeonse prices, a large-scale reverse jeonse crisis could occur.

However, the sales market is showing a cautious atmosphere. KB's Seoul sale price outlook index recorded 108.8 this month, still above 100, but the outlook has been declining over the past three months. In weekly surveys, Seoul's buyer dominance index has already dropped to 85.2, indicating that there are more sellers than buyers. KB Real Estate Live On explained, "Expectations for jeonse price increases remain," adding, "We need to observe the stabilization of the jeonse market a bit longer."

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