'Pre-Subscription' for Housing Price Stabilization... Concerns Over Worsening Jeonse Crisis

Increase in Pre-Subscription Expands Waiting Demand
Seoul's Move-In Volume Expected to Recover in Two Years
Short-Term Concerns Over Jeonse Crisis Grow
Government Measures Insufficient... Weekly Jeonse Prices Soar

Price list in front of a real estate agency in Banpo-dong, Seocho-gu, Seoul. [Image source=Yonhap News]

The government’s plan to significantly expand pre-sale apartment units in order to accelerate supply effects has raised concerns that the short-term jeonse (long-term lease) crisis may worsen. Although the number of move-in units remains unchanged, a large number of pre-sale applicants are staying in the jeonse market, which could lead to a sharp rise in jeonse prices in the Seoul metropolitan area. In particular, it is expected that localized jeonse shortages will occur as relocation demand for winning pre-sale applications concentrates in popular areas.

According to the real estate industry on the 26th, the Ministry of Land, Infrastructure and Transport announced plans to supply an additional 101,000 units through pre-sale, including 71,000 units in the Seoul metropolitan area, by the first half of 2024, heightening tension in the rental market. While the government aims to stabilize the housing sales market by expanding pre-sale, in the short term, this could increase jeonse demand and further destabilize housing for low-income residents.

Since pre-sale applications give preference to residents of the relevant area, many relocation demands arise as applicants move to the area to increase their chances of winning. In fact, popular 3rd New Towns such as Hanam Gyosan saw a decrease in jeonse listings and a significant price increase after the pre-sale system was announced last year. This time as well, with the government greatly increasing pre-sale units in Seoul and the metropolitan area, concerns are growing that instability in the metropolitan jeonse market could worsen.

The shortage of move-in units in Seoul over the next two years is also problematic. The Ministry of Land, Infrastructure and Transport expects housing supply over the next 10 years to exceed previous levels due to measures such as the 8·4 and 2·4 plans, but anticipates that apartment move-in volumes will decrease at least until next year, with the market expected to recover around 2023 in Seoul. Considering supply and demand conditions, housing market stability can be expected in the mid to long term.

Within the industry, concerns are being raised that pre-sale could burden the rental market, given the recent rapid rise in jeonse prices in the metropolitan area. Eunhyung Lee, a senior researcher at the Korea Construction Policy Institute, explained, "While pre-sale may somewhat reduce demand in the sales market, it does not do so in the rental market." The urban high-density development projects to which pre-sale is being expanded this time may take more than 7 to 8 years until actual move-in, raising the possibility of an increase in ‘subscription refugees’.

The Ministry of Land, Infrastructure and Transport is also worried about the expansion of the jeonse crisis but has not presented clear countermeasures. Kim Younghan, Director of Housing Policy at the Ministry, said at a briefing yesterday, "The concern that pre-sale places a burden on the jeonse market locally has been raised since the 3rd New Town pre-sale. We will steadily implement the jeonse measures announced last November and devise necessary policies."

However, even after the announcement of last year’s jeonse measures, jeonse prices in Seoul and the metropolitan area have soared, indicating the need for alternatives. According to the Korea Real Estate Board, the cumulative increase in jeonse prices in the metropolitan area reached 6.26% by July this year, nearly double the 3.21% increase in the same period last year.

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