Unprecedented Sharp Decline in Bank Loans Amid Vanishing Jeonse Transactions (Comprehensive)

Balance Trends of 5 Major Banks
Increase Limited to 7.6 Billion Won Over 2 Weeks

[Asia Economy Reporters Kim Hyo-jin and Kim Min-young] Along with the rise in jeonse prices, the surge in jeonse loan amounts from major commercial banks has sharply decreased since the beginning of this month. It is unusual for jeonse loans to drop significantly ahead of the moving season in October.

It is analyzed that this is due to the difficulty in finding jeonse listings itself, as well as the halt in new jeonse transaction demand caused by the exercise of the right to request contract renewal under the three lease laws.

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

Last month, jeonse loans from the five major banks increased by 2.6734 trillion won compared to August, marking the largest increase this year. Following increases of 1.7374 trillion won and 1.9923 trillion won in June and July respectively, the amount rose to 2.4007 trillion won in August. This was the reason why the outstanding balance of jeonse loans from the five major banks was expected to surpass 100 trillion won significantly starting this month.

A bank official described this as a "very unusual trend," adding, "It is difficult to explain except that there were significantly fewer jeonse transactions." The official also noted, "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 Right to Request Contract Renewal

It is interpreted that the active exercise of the right to request contract renewal by tenants has had the greatest impact. The amended Housing Lease Protection Act, which came into effect on July 31, allows tenants to exercise the right to request contract renewal 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 nationwide jeonse deposit public guarantees last month was 59.3%. This is a 9 percentage point increase compared to the previous month (50.3%). The renewal rate in Seoul rose to 60.4%, surpassing 60% for the first time this year. The public guarantee for jeonse deposits is insurance provided by the Housing and Urban Guarantee Corporation and the Korea Housing Finance Corporation that guarantees tenants' jeonse loans from financial institutions.

Considering that monthly rent and jeonse contracts are not subject to mandatory reporting, making contract situations less visible in statistics, it is generally believed that there are many contract renewal cases not covered by this data.

Meanwhile, the volume of jeonse transactions has recently been declining sharply. According to the Seoul Real Estate Information Plaza, jeonse transactions in August were 17,864 cases, down 14.5% compared to August last year (20,905 cases). Last month, jeonse transactions were 12,985 cases, a 33.8% decrease compared to September last year (19,045 cases). 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.

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As jeonse listings have become scarce, the sentiment that jeonse prices will rise has reached its highest level in about five years. According to the 'September Real Estate Market Consumer Sentiment Survey' by the Korea Research Institute for Human Settlements' Real Estate Market Research Center, the nationwide consumer sentiment index for the jeonse market last month was 123.9, the highest since October 2015 when it recorded 127.8.

Seoul recorded 131.0. Although this is 1.6 points lower than the previous month (132.6), it remains a high figure. The sentiment index classifies below 95 as a downturn phase, 95 to below 115 as a stable phase, and 115 or above as an upturn phase.

It is also analyzed that the rent increase cap of 5% under the monthly rent and jeonse rent ceiling system has 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.