The Barrier to Gap Investment Has Lowered... Capital Region Jeonse Price Ratio Hits Highest This Year

Seoul Metropolitan Area Apartment Jeonse Rate at 67.1% in December
Some Areas in Gyeonggi See 'Negative Gap' Emerging

Apartments stand in a row in Unjeong New Town and Ilsan New Town, as seen from the border area of Paju-si, Gyeonggi-do. [Image source=Yonhap News]

[Asia Economy Reporter Onyu Lim] "Is it okay to sign a jeonse contract that is 50 million KRW more expensive than the sale price?" This is a question posted recently by Mr. A on an online community in Ilsan, Goyang, Gyeonggi Province. This situation arose as the jeonse asking price exceeded the actual sale price due to a shortage of jeonse listings in the apartment where Mr. A lives.

Since the implementation of the two lease laws, the Contract Renewal Request System and the Jeonse and Monthly Rent Cap System, the gap between jeonse prices and sale prices of apartments in the metropolitan area has narrowed, causing gap investment to resurface. In some complexes in Gyeonggi Province, there have even been cases where jeonse prices surpassed sale prices.

According to the KB Monthly Housing Market Trends on the 29th, the jeonse rate (jeonse price relative to sale price) of apartments in the metropolitan area reached 67.1% in December, marking the highest point this year. The previous peak was 66.9% in January. The metropolitan area apartment jeonse rate had been declining steadily from January but rebounded in September and has been rising for four consecutive months. This is the result of a shortage of jeonse supply and a sharp rise in jeonse prices since the end of July when the two lease laws were enacted. Although housing prices are also rising, the increase in jeonse prices is steeper.

By region, the jeonse rate for apartments in Seoul this month was 56.1%, rising for four consecutive months since August's 53.3%, setting a new high for the year. The jeonse rate in Gyeonggi Province also reached 72.3%, the highest this year. Incheon also saw a four-month consecutive increase, reaching 73.6%.

As the jeonse rate continues to rise, cases of so-called 'negative gap' where jeonse prices exceed housing prices have appeared. For example, a 59㎡ (exclusive area) apartment in Tanhyeon 2 Complex, Tanhyeon-dong, Ilsan Seo-gu, Goyang, was leased for 215 million KRW on the 8th of this month. This property was sold for 205 million KRW on the 25th of last month. The jeonse price was 10 million KRW higher than the sale price, meaning the buyer acquired the house without paying any money. The jeonse rate in Ilsan Seo-gu reached 80.6% this month. Over the past three months, there have been 54 complexes in this area where the price difference between sale and jeonse prices was zero or less than 50 million KRW.

With the rising jeonse rate, gap investment involving jeonse-backed apartment purchases is showing signs of resurgence. While gap investment has the positive effect of supplying jeonse listings to the market, it is also a major factor driving up housing prices due to speculative demand. Particularly in negative gap transactions, tenants face a higher risk of not being able to recover their deposit. A real estate industry official said, "With rising jeonse prices and a low-interest rate environment, it will be difficult to curb demand for gap investment," adding, "As investment demand from provincial areas also heads toward the metropolitan area, the real estate market could become unstable."

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