Confusion Over the 2.5% Jeonse-to-Jeonwol Conversion Rate Starting Today

Adjustment from existing 4.0%... No Retroactive Application
Another Contract Dispute Foreseen Between Tenant and Landlord

[Asia Economy Reporter Donghyun Choi] From the 29th, the jeonse-to-monthly rent conversion rate applied when changing the jeonse deposit to monthly rent during contract renewal will be lowered from 4.0% to 2.5%. Although the intention is to protect tenants, concerns are being raised that conflicts between landlords and tenants will intensify due to the government's artificial market intervention.

According to the Ministry of Land, Infrastructure and Transport on the 29th, the revised Enforcement Decree of the Housing Lease Protection Act (HLP Act), which includes this content, came into effect on the same day. As a result, even if the same amount is converted to monthly rent, the tenant's monthly rent burden will decrease by 37.5%. For example, if a jeonse deposit of 300 million KRW is converted to monthly rent, the previous monthly rent was 1 million KRW, but it will now be 625,000 KRW.

The jeonse-to-monthly rent conversion rate applies only during contract renewals and does not apply to new contracts. Contract renewals made before the enforcement decree will not be applied retroactively. A Ministry of Land official stated, "Considering the current market interest rate level, there were many opinions that the conversion rate was excessively high and needed to be lowered to alleviate the housing cost burden on low-income households," explaining the purpose of the revision.

However, the conversion rate is not fixed at 2.5%. The conversion rate is calculated by adding the interest rate specified in the enforcement decree (2.0%) to the Bank of Korea's base rate. Currently, the base rate is 0.5%, so the conversion rate is 2.5%. If the base rate changes, the conversion rate will automatically change as well.

Along with this, the revised enforcement decree also guarantees the right to view the previous tenant's lease information to prevent landlords from falsely rejecting tenants' contract renewal requests. The information available for viewing includes the names of the landlord and tenant, lease period, deposit, and status of the fixed date registration.

Meanwhile, in the market, concerns are also being raised that the reduction of the jeonse-to-monthly rent conversion rate will expand disputes between landlords and tenants, which have been increasing due to the introduction of the jeonse and monthly rent ceiling system and the contract renewal claim right system. Jin-hyung Seo, president of the Korea Real Estate Society (professor at Gyeongin Women's University), pointed out, "Landlords reluctant to convert to monthly rent are likely to raise the jeonse price up to the maximum limit (5%) and pass the burden all at once to new tenants after four years," adding, "The government's patchwork measures will only increase conflicts between landlords and tenants."

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