Transaction Disappearance Due to Lease 3 Laws... Unusual Sharp Decline in Bank Jeonse Loans Early This Month

Sharp Drop in Jeonse Transactions After Enforcement of Lease 3 Laws
Most Renewals Lead to Plunge in Bank Jeonse Loan Demand
Balance Increase of 7.6 Billion Won Over Two Weeks at 5 Major Banks
Contrasted with 20 Trillion Won Surge in August-September

[Asia Economy Reporters Kim Hyo-jin and Kim Min-young] Major commercial banks' jeonse loan balances, which had surged alongside rising jeonse prices, have sharply declined since the beginning of this month. It is unusual for jeonse loans to drop significantly ahead of the October moving season.

Analysts attribute this to the difficulty in finding jeonse listings itself, as well as the cessation of new jeonse transaction demand due to the exercise of the contract renewal request right under the three lease laws.

According to the banking sector on the 16th, the total balance of jeonse loans from the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?stood at 99.8113 trillion KRW as of the 14th of this month, increasing by only 7.6 billion KRW compared to the end of last month (99.8037 trillion KRW). Although only two weeks have passed, considering the recent growth trend, this increase is so minimal that it can be said there are virtually no new loan transactions. Some banks even saw their balances shrink by about 500 billion KRW compared to the end of last month as of the 14th.

Last month, jeonse loans at the five major banks increased by 2.6734 trillion KRW compared to August, marking the largest growth this year. Following increases of 1.7374 trillion KRW and 1.9923 trillion KRW in June and July respectively, the figure rose to 2.4007 trillion KRW in August. This was the basis for expectations that the total jeonse loan balance at the five major banks would significantly exceed 100 trillion KRW starting this month.

A banking official described this as a "very unusual trend," adding, "It is difficult to explain this other than by the fact that jeonse transactions were that low." The official further explained, "Considering the time lag between signing a jeonse contract and paying the balance, it appears that loans reflecting contracts made from spring to summer were recorded until last month, and the flow has since stopped."

Analysis of the Impact of Exercising the Contract Renewal Request Right

This is interpreted as being largely influenced by tenants' active exercise of the contract renewal request right. The amended Housing Lease Protection Act, which took effect on July 31, allows tenants to exercise the contract renewal request right starting six months before the contract period ends.

According to data submitted by the Housing and Urban Guarantee Corporation and the Korea Housing Finance Corporation to Jin Sung-jun, a member of the Democratic Party, the renewal rate of public guarantees for jeonse deposits nationwide was 59.3% last month. This is a 9 percentage point increase from the previous month (50.3%). The renewal rate in Seoul rose to 60.4%, surpassing 60% for the first time this year. Public guarantees for jeonse deposits are insurance policies where the Housing and Urban Guarantee Corporation and the Korea Housing Finance Corporation take responsibility for guaranteeing tenants' financial institution jeonse loans.

Considering that monthly rent contracts are not subject to mandatory reporting and thus contract situations are not well captured in statistics, the general view is that there are likely many contract renewal cases not reflected in these figures.

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Meanwhile, jeonse transaction volumes have recently been repeatedly declining sharply. According to the Seoul Real Estate Information Plaza, jeonse transactions in August numbered 17,864, down 14.5% compared to August last year (20,905). Last month, jeonse transactions were 12,985, a 33.8% decrease compared to September last year (19,045). The number of jeonse contracts for apartments in Seoul last month was 5,055, the lowest since the Seoul Metropolitan Government began compiling related statistics in 2011.

The rent increase cap of 5% under the monthly rent and jeonse rent ceiling system is also analyzed to have affected jeonse loans. Even if the deposit is raised, if the increase is not significant, many may prefer to use their existing cash or take out unsecured loans instead.

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