Nowon 140 Million, Paju -10 Million... The 'Gap Investment' Triggered by the Jeonse Crisis

Rents Soar Daily After July Lease Laws
Gap Between Rent and Sale Prices Narrows, Making Gap Investment Easier
"Landlords Buy Properties and Immediately Sign Jeonse Contracts"

[Image source=Yonhap News]

[Asia Economy Reporter Onyu Lim] #A in his 30s, a non-homeowner living in a company-owned house in Gwangjin-gu, Seoul, recently purchased an apartment in Sanggye-dong, Nowon-gu for 490 million KRW and immediately leased it for 350 million KRW on a jeonse (long-term lease) basis. A said, "The jeonse price has risen by nearly 100 million KRW in just a few months, significantly reducing my investment capital," adding, "I plan to lease it for now and move in once I have saved enough funds."

#B, also in his 30s and married last year, purchased a unit in a redevelopment project in Dongdaemun-gu for 250 million KRW. Due to the jeonse shortage and rising jeonse prices for row houses, his actual investment was only 70 million KRW. He said, "Since I thought my chances of winning a housing lottery were slim, I combined the money from closing my bank account with funds from my parents to invest in the row house."

Gap Investment Resurfaces... Jeonse Prices Surge in the Capital Area, Narrowing Gap with Purchase Prices

Since the implementation of the new Housing Lease Protection Act, jeonse prices in Seoul and the metropolitan area have surged, narrowing the gap with purchase prices, leading to a resurgence of gap investment. Analysts suggest that recent gap investments reflect the mindset of young people trying to escape housing insecurity caused by soaring jeonse prices rather than expectations of rising home prices. There are also concerns that panic buying among the 20s and 30s generation, who face blocked paths to homeownership due to soaring apartment subscription competition, may reignite.

According to the real estate industry on the 12th, since the implementation of the two lease laws?contract renewal rights and rent ceiling system?at the end of July, jeonse prices have risen sharply, leading to a noticeable increase in gap investment inquiries, especially for mid-to-low priced apartments in Seoul and Gyeonggi-do.

A representative from A Real Estate Agency in Sanggye-dong, Nowon-gu, said, "While purchase prices have stalled, jeonse prices have risen by more than 50 million KRW in just three months in many complexes, leading to a surge in gap investment inquiries mainly from young people," adding, "Most prefer to lease immediately after purchase." He explained, "The severe jeonse shortage after the implementation of the two lease laws has made it possible to lease at high prices."

Regulations Strengthened to Block Gap Investment but Weakened by Two Lease Laws... 'Encouraging Gap Investment'

Some criticize that government policies aimed at blocking gap investment through loan regulations have been undermined by the two lease laws. Gap investment had cooled after the June 17 real estate measures banned jeonse loans for homeowners. However, the implementation of the two lease laws reduced the gap between purchase and jeonse prices, creating more favorable conditions for gap investment.

This trend is also seen in Gyeonggi-do areas such as Gimpo and Paju. A representative from B Real Estate in Janggi-dong, Gimpo, said, "Gimpo has many development prospects, and with jeonse prices rising sharply recently, there are many inquiries about properties available for purchase at around 100 to 200 million KRW," adding, "Many of these inquiries come from young people with limited funds."

In some areas, jeonse prices have even surpassed purchase prices, resulting in gap transactions with 'negative' actual investment costs. For example, in Cheongseok Village, Dayul-dong, Paju-si, a jeonse contract was recently signed for 230 million KRW on an 84㎡ (exclusive area) unit at Dongmoon Good Morning Hill, which was sold for 220 million KRW in August. The jeonse price is 10 million KRW higher than the purchase price. Five months ago, the jeonse price for this apartment was around 180 million KRW. A buyer who purchased an 84㎡ apartment in Taeyoung, Yeongtong-dong, Yeongtong-gu, Suwon for 490 million KRW last month was also confirmed to have leased it recently for 450 million KRW on a jeonse basis.

In Seoul, the gap between purchase and jeonse prices is narrowing in aging small apartments. For example, a 59㎡ unit in Geoseong Pureumoe, Gaebong-dong, Guro-gu, which changed hands for 360 million KRW in September, was recently leased for 290 million KRW. In Eunpyeong-gu, a unit in Eungam Prugio was listed last month with a purchase price of 700 million KRW and a jeonse price of 630 million KRW, showing a gap of 70 million KRW.

The decrease in the gap between jeonse and purchase prices is also confirmed by statistics. According to KB Real Estate, the jeonse-to-purchase price ratio for Seoul apartments was 53.3% in August, rising to 53.6% in September and 54.2% in October, marking two consecutive months of increase. This is the first time in four years and three months since July 2016 that Seoul's apartment jeonse ratio has risen for two consecutive months. The jeonse ratio in Gyeonggi-do also exceeded 70% for the first time since February, reaching 70.7%.

Experts predict that the gap between jeonse and purchase prices will continue to narrow for the time being. Yang Ji-young, director of R&C Research Institute, said, "With Seoul's housing supply halving and the two lease laws limiting the supply of existing jeonse units, jeonse prices are bound to rise at least until next year."

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