The Monthly Rent Conversion of Seoul Apartments' Jeonse Triggered by the "Lease 3 Act"

Increase of 5%P in Monthly Rent Share Among Jeonse and Wolse Transactions in First Half of This Year
Tenants Driven to Monthly Rent Due to Listing Shortage and Sharp Rise in Jeonse Prices
Government Calls It a "Temporary Phenomenon," but Experts Forecast "Continued Jeonse Shortage for the Time Being"

[Asia Economy Reporter Onyu Lim] The implementation of the ‘Lease 3 Acts’ has accelerated the shift from jeonse (long-term deposit lease) to monthly rent in the apartment lease market in Seoul. As the circulating supply in the market decreases, leading to a shortage of listings and a sharp rise in jeonse prices, tenants are unable to afford the increased deposits and are being pushed towards monthly rent. Additionally, landlords’ efforts to offset the increased property tax burden by charging more monthly rent are also cited as a cause for the growing share of monthly rent.

According to the Seoul Real Estate Information Plaza on the 8th, from the beginning of this year to June, there were a total of 79,847 apartment lease transactions in Seoul. Among these, monthly rent transactions, including semi-monthly and semi-jeonse leases, accounted for 26,951 cases, representing 33.7% of the total. In the first half of last year, the total lease transactions were 95,128, with monthly rent transactions making up 28.6% or 27,264 cases. While the overall transaction volume decreased by 16.1% over one year, the proportion of monthly rent transactions increased by 5.1 percentage points.

This decrease in transaction volume and increase in monthly rent share is predominantly attributed to the impact of the Lease 3 Acts. The Lease 3 Acts refer to the contract renewal request right and the rent ceiling system implemented at the end of July last year, and the lease reporting system enforced from June this year. The industry explains that as tenants exercised their contract renewal rights, reducing the number of listings on the market and causing jeonse prices to surge, a significant portion of the increased deposits was converted into monthly rent. According to the real estate big data company Apartment Real Transaction Price, recent jeonse listings for Seoul apartments fluctuate between the high 19,000s and low 20,000s. Compared to around 40,000 listings in July last year, this is roughly half.

The problem is that this supply-demand imbalance is causing a vicious cycle that further drives up jeonse prices. According to KB Real Estate, the average jeonse price for Seoul apartments, which was 575.82 million KRW in December last year, soared to 626.78 million KRW in June this year. This is an increase of over 50 million KRW, roughly equivalent to a typical office worker’s annual salary, within six months.

The government maintains that the jeonse shortage is a temporary phenomenon. Recently, Minister of Land, Infrastructure and Transport Noh Hyung-wook stated, "While relocation demand has decreased to one-third, the volume of new move-ins is similar to past averages," adding, "There may be localized supply-demand issues in Seocho-gu due to concentrated relocation demand from redevelopment projects, but overall supply-demand problems are expected to improve by the end of the year."

However, experts predict that the jeonse shortage caused by the lack of listings will persist for some time. Jang Jae-hyun, Head of Research at Realtoday, pointed out, "While the new lease law has reduced supply, jeonse demand remains substantial due to factors like the 3rd New Town housing subscription," adding, "With supply far short of demand, jeonse prices are bound to rise." Kim Hak-ryeol, Director of SmartTube Real Estate Research Institute, also forecasted, "The jeonse market will only ease with new move-ins, but since the volume of move-ins is expected to decrease from the second half of the year, jeonse price increases are inevitable."

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