"Buying a House in 1st Generation New Town with Seoul Jeonse Price" Concerns Over Accelerated Jeonse-to-Sale Shift Next Year

[Asia Economy Reporter Kim Yuri] "If that's the case, I might as well buy a house." Concerns are growing that next year's jeonse (long-term lease) demand will accelerate its shift to purchase demand. This is because the average jeonse price per apartment household in Seoul has far exceeded 500 million KRW, making it possible to buy a home in most areas of the metropolitan area for the same price. Experts predict that the jeonse shortage will be difficult to resolve next year as well, considering the sharp decline in new housing supply and the strengthening of owner-occupancy requirements, leading to an acceleration in the shift from jeonse to purchase demand.

According to Real Estate 114 on the 24th, as of the 27th of last month, the average jeonse price per apartment household in Seoul was 557.03 million KRW. This figure is comparable to the average sale prices in major metropolitan areas. In fact, the average sale price per household in the metropolitan area is 454.51 million KRW in Gyeonggi and 328.65 million KRW in Incheon, both far exceeding the average jeonse price in Seoul. Moreover, the Seoul jeonse price is only 36.85 million KRW less than the average sale price per household in the first-generation new towns, which is 593.88 million KRW. This confirms the sentiment of "rather than struggling with the jeonse shortage, I might as well buy a house in the metropolitan area" in numbers. However, the average sale price per household in the second-generation new towns is 712.27 million KRW, still about 150 million KRW higher than the Seoul jeonse price.

The gap between the average jeonse price and sale price per household, which can estimate the amount of money needed for a jeonse resident to buy a house, also exceeds 500 million KRW in Seoul (517.57 million KRW), while it is relatively lower in Gyeonggi (150.45 million KRW) and Incheon (97.99 million KRW).

The problem is that the jeonse shortage centered in Seoul shows no signs of improvement next year. The expected number of apartment move-ins in Seoul next year is 27,334 households, which is expected to be halved compared to this year's 50,289 households. In addition, various real estate policies aimed at curbing purchase demand, such as mandatory owner-occupancy for mortgage loans in regulated areas, strengthened owner-occupancy requirements for capital gains tax exemption, added residency requirements for long-term holding special deductions on high-priced homes, and a two-year owner-occupancy requirement for reconstruction, are accelerating owner-occupancy among landlords, causing a sharp decrease in jeonse listings. The reform of the subscription market focused on owner-occupants has also affected the imbalance in jeonse supply and demand. According to the Korea Construction Industry Research Institute, the jeonse transactions within three months before and after move-in for newly built apartments with over 100 households in Songpa-gu, Seoul, accounted for 64.1% in February 2018 but dropped to 26.6% in June this year.

There is also speculation that the demand switching from jeonse to purchase will increase further in the Seoul area. This is because the jeonse price increase rate is two to three times higher than the sale price increase rate, narrowing the gap between sale and jeonse prices. Yoon Ji-hae, senior researcher at Real Estate 114, said, "As the gap between jeonse prices and sale prices narrows and the jeonse shortage prolongs, the tendency to switch from the jeonse market to the purchase market has increased," adding, "Quickly resolving the jeonse shortage is the way to stimulate the purchase market less."

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