Rising Jeonse Prices Push Commoners and Middle Class into Debt Pile (Comprehensive)

Rising Loan Dependence Due to Intensifying Jeonse Crisis
Loan Growth Expected to Continue Ahead

[Asia Economy Reporter Kim Hyo-jin] Last year, the increase in jeonse (long-term lease) loan amounts at major commercial banks nearly expanded by 50% compared to 2019.

This indicates that the loan dependency of low- and middle-income households living under jeonse has grown significantly due to the sharp rise in jeonse prices caused by a drastic decrease in available properties following the amendment of the Housing Lease Protection Act at the end of July last year.

With expectations high that the jeonse shortage will continue this year, bank jeonse loans are also forecasted to maintain a rapid increase for the time being.

According to the banking sector on the 5th, the outstanding balance of jeonse loans at the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?was recorded at 105.0988 trillion KRW as of the end of December last year. This represents an increase of 22.3455 trillion KRW over one year since January of the same year (82.7533 trillion KRW).

The increase was 43.2% larger than in 2019, when the balance rose by only 15.6058 trillion KRW from January to December.

In December last year, the jeonse loan balance grew by 1.7596 trillion KRW compared to November (103.3392 trillion KRW), exceeding the November increase of 1.6564 trillion KRW. This contrasts with the decrease in unsecured loan balances during the same period due to banks tightening regulations under financial authorities' pressure.

A representative from a commercial bank said, "The impact of rising jeonse prices is clearly reflected in the loan trends."

6 out of 10 Expect Jeonse Prices to Rise Again This Year

This trend is expected to continue. According to a mobile survey conducted by real estate information company Zigbang from the 7th to the 20th of last month targeting 3,230 app users, more than 65.5% of respondents?over 6 out of 10?predicted that jeonse prices will rise this year.

The main reasons cited for expecting jeonse price increases were 'shortage of jeonse supply (available properties) (54.9%)' and 'impact of rising sale prices (29.0%)'.

According to KB Real Estate LivOn’s monthly housing price trends, the average jeonse price for apartments in Seoul last month was 575.82 million KRW, up 21.38% (104.6 million KRW) compared to the same period last year (474.36 million KRW). Seoul apartment jeonse prices have been rising for 20 consecutive months since April 2019 (462.10 million KRW).

As the jeonse shortage intensifies mainly in apartments, officetel (studio apartment) jeonse prices are also showing signs of increase. According to the Korea Real Estate Board, nationwide officetel jeonse prices rose by 0.62% in the fourth quarter of last year, more than doubling the increase from the previous quarter (0.27%).

The nationwide officetel jeonse price growth rate increased from 0.06% in the fourth quarter of 2019 to 0.12% in the first quarter of last year, then declined to -0.04% in the second quarter. However, it rebounded in the third quarter following the implementation of the amended lease law and expanded further in the fourth quarter.

A commercial bank official explained, "While there are regulations on jeonse loans for owners of high-priced homes or multiple homeowners, if one does not fall under these categories, the loans cannot be regulated like general unsecured loans. If the market environment where jeonse prices continue to rise does not change, the trend of increasing jeonse loans will continue this year as well."

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