Warning for 'Kkangtong Jeonse' Ahead of Mandatory Rental Deposit Guarantee Implementation

The view of downtown apartments from Namsan, Seoul, on the afternoon of the 29th of last month

With the full mandatory subscription to rental deposit guarantee insurance for housing rental business operators approaching, concerns are growing over blind spots in the insurance coverage as the number of “empty-can jeonse” cases?where the jeonse deposit exceeds the market price?increases. In particular, it is evaluated that the vicious cycle of the jeonse crisis could worsen as landlords with high debt ratios convert jeonse leases into monthly rents.

According to the Ministry of Land, Infrastructure and Transport and the National Assembly on the 2nd, from the 18th of this month, all registered rental business operators will be required to subscribe to rental deposit guarantee insurance. This is a safety measure to protect tenants in case the landlord fails to return the jeonse deposit. If a rental business operator renews a contract after this date without subscribing to the rental deposit guarantee, they may face imprisonment for up to two years or a fine of up to 20 million won. However, if the housing price is less than the sum of the rental deposit and the secured amount, resulting in a debt ratio of 100% or more, insurance subscription will not be possible. In the case of empty-can jeonse, this can become a blind spot in guarantee insurance coverage.

The problem is that empty-can jeonse cases are increasing amid the nationwide jeonse crisis. Last month, the average jeonse price for apartments in the Seoul metropolitan area was 433.81 million won, and in the six major metropolitan cities, it was 242.57 million won, rising by 96.45 million won and 37.92 million won respectively compared to July last year. Nationwide, the average jeonse price rose by 62.39 million won between July last year (255.54 million won) and this July (318.33 million won).

In some areas, “negative gap investment,” where jeonse is priced higher than the sale price, is spreading, further fueling concerns about empty-can jeonse. In the top three cities nationwide where gap investment was rampant over the past three months, signs of negative gap investment were detected. For example, an 80㎡ apartment in Bugok-dong, Gimhae-si, Gyeongnam, was leased on a jeonse contract for 155 million won on the 25th of last month. The next day, the same-sized apartment was sold for 147 million won, 8 million won less than the jeonse price. In Jinwi-myeon, Pyeongtaek-si, Gyeonggi-do, a 59㎡ apartment showed a 5 million won difference between the sale price (120 million won on July 8) and the jeonse price (125 million won on July 22). In Baebang-eup, Asan-si, Chungnam, an 84㎡ apartment’s sale and jeonse price gap steadily narrowed, converging at 220 million won last month.

Amid the jeonse crisis, tenants bear the risk of empty-can jeonse, while rental business operators risk becoming offenders. For rental business operators with high debt ratios to subscribe to guarantee insurance, they must either repay existing debts or reduce the deposit. A real estate industry official said, “Among multi-home landlords who find it difficult to adjust deposits, there may be moves to convert jeonse into semi-jeonse or monthly rent,” adding, “This could lead to a decrease in jeonse listings, worsening the jeonse shortage in a vicious cycle.”

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