Five Months of the New Lease Law... Tenants on the Brink Pushed into Monthly Rent

Rapid Surge in Sales, Jeonse, and Monthly Rent Prices Leading to Housing Ladder Collapse
Monthly Rent Hits 3 Million Won in Seoul, 1 Million Won for 30-Pyeong Units in Suburbs
Landlords Face Heavy Tax Burdens and Pass Costs onto Tenants

Apartment complexes in Songpa and Gangnam areas as seen from Maebongsan Mountain in Seoul on the afternoon of the 1st [Image source=Yonhap News]

[Asia Economy Reporter Onyu Lim] #In an apartment in Seoul, Mr. A, a tenant in his 40s who was living with a jeonse deposit of 500 million won, reluctantly renewed his lease with the landlord last December. The contract was renewed under a half-jeonse condition, where the deposit remained the same but the monthly rent was 800,000 won. Before the renewal, when Mr. A said he would exercise his right to renew the lease, the landlord Mr. B threatened, saying, "I will let my son who lives in Gyeonggi Province move in," and eventually Mr. A appeased the landlord by paying monthly rent. With jeonse prices in the neighborhood having risen by more than 200 million won in two years and listings scarce, there was no other option. Mr. A said, "Having to pay a considerable amount every month including interest on the jeonse deposit loan has made owning my own home even more distant."

As nationwide housing sale, jeonse, and monthly rent prices have all surged simultaneously, tenants are facing a dire situation. Jeonse tenants who were saving seed money to buy their own homes are frustrated by rising sale prices and are now forced to pay monthly rent as well. During the five months since the new Housing Lease Protection Act, which includes the jeonse and monthly rent cap system and the right to renew lease contracts, was implemented, there is an evaluation that the housing ladder collapse has accelerated, with jeonse tenants being pushed into the monthly rent market.

According to the real estate industry on the 5th, as the jeonse crisis spreads to a monthly rent crisis, high-priced monthly rents are appearing everywhere regardless of whether it is Gangnam or Gangbuk areas in Seoul. Even in the outskirts of Seoul, monthly rents exceeding 1 million won for 30-pyeong (approx. 99 sqm) units can be easily found. An 84㎡ (exclusive area) unit in Namhyeon Hanil U&I in Namhyeon-dong, Gwanak-gu, Seoul, was traded last December with a deposit of 250 million won and monthly rent of 1.1 million won. The same size unit was traded last April with the same deposit but monthly rent of 700,000 won, meaning monthly rent rose by nearly 60% in eight months. In December last year alone, monthly rent contracts ranging from 1 million to 1.35 million won were signed for 84㎡ units in Yongmasan Haneulchae in Myeonmok-dong, Jungnang-gu, and Mia 1st Raemian and Doosan We've Trigeum in Mia-dong, Gangbuk-gu.

Local real estate agencies explain that most of these high-priced monthly rents in the area are due to the impact of the new lease law implemented at the end of July last year. A representative from Namhyeon-dong C Real Estate Agency said, "This complex is close to the subway station and originally had scarce jeonse listings, but after the new lease law, listings have completely disappeared. There are waiting tenants who are willing to pay monthly rent over 1 million won, but currently, there are no monthly rent listings either."

In the outskirts of downtown Seoul, high-priced contracts with monthly rents exceeding 3 million won are continuing. An 115㎡ unit in Oksu Park Hills in Oksu-dong, Seongdong-gu, was contracted on the last day of December last year with a deposit of 500 million won and monthly rent of 3.1 million won. About a year ago, the same deposit had a monthly rent of 2.5 million won, so it jumped by 600,000 won at once. Other 30-pyeong units such as Oksu Riverzen 84㎡ and Gyeonghuigung Xi 84㎡ in Pyeong-dong, Jongno-gu, were traded last month with monthly rents of 3 million won.

In the Gangnam area, ultra-high monthly rents exceeding 5 million won are appearing one after another. In Daechi-dong, where excellent school districts and cram schools are concentrated, rental listings are scarce to the point that "the price is whatever the landlord asks." A 161㎡ unit in Dongbu Centreville in Daechi-dong was contracted last November with a deposit of 500 million won and monthly rent of 7.2 million won. The same size and floor unit was contracted in July with a deposit of 300 million won and monthly rent of 7 million won, but in just four months, the deposit increased by 200 million won and monthly rent rose by 200,000 won, setting the highest monthly rent record for this apartment.

The rapid rise in monthly rent is worsening the market situation as landlords pass on the tax burden caused by the government's strengthened property tax. A representative from D Real Estate in Apgujeong-dong, Gangnam-gu, explained, "As property taxes on high-end homes are expected to surge, many landlords are converting jeonse to monthly rent to pay the taxes."

Currently, there seems to be no suitable breakthrough. Experts predict that the instability in the rental market will continue as the supply of new apartments decreases significantly this year. According to Real Estate 114, the number of new housing units in the metropolitan area this year is 151,698 units, about 36,000 units less than last year's 187,686 units. There are also criticisms that as long as the government maintains its current stance on strengthening capital gains tax and property tax on multiple homeowners, the collapse of the housing ladder will inevitably accelerate. Kim Hak-ryeol, head of the Smart Tube Real Estate Research Institute, pointed out, "Since the implementation of the new lease law, the jeonse supply in Seoul has sharply decreased, turning the nationwide real estate market into chaos. While jeonse prices are rising, the burden of property tax is being passed on as monthly rent, causing the housing ladder to collapse."

Minister of Land, Infrastructure and Transport nominee Byeon Chang-heum is attending the confirmation hearing held at the National Assembly on the 23rd, responding to questions from lawmakers. Photo by Yoon Dong-joo doso7@

The market also points to the supply measures expected to be announced by the government before the Lunar New Year holiday as another variable. After real estate market instability was identified as one of the decisive reasons for the drop in support for the Moon Jae-in administration in year-end and early-year opinion polls, Deputy Prime Minister and Minister of Strategy and Finance Hong Nam-ki stated, "From the beginning of the year, we must put all policy efforts into ensuring the stabilization of the real estate market." Minister of Land, Infrastructure and Transport Byeon Chang-heum also expressed his determination to ease public concerns through market stabilization.

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