Local Buying Surpasses Seoul Metropolitan Area... Concerns Over Gap Investment-Driven 'Empty Lease'

Capital Region Stalls While Local Areas See Increased Growth
Local Sales Supply-Demand Index Surpasses Capital Region for First Time This Year
Rising Gap Investments Raise Concerns Over 'Kkangtong Jeonse'
Financial Strain on Yeongkkeul Homeowners Could Harm Tenants

For the first time this year, apartment buying demand in provincial areas has surpassed that of the Seoul metropolitan area. While price increases in the metropolitan area have somewhat slowed due to loan regulations and widespread perceptions of peak housing prices, demand in provincial regions with many mid- to low-priced complexes is actually expanding. As money flows into the provinces, 'gap investment'?buying homes with jeonse deposits?is also increasing, raising concerns that these areas could become the epicenter of a 'Kkangtong Jeonse' (underwater jeonse) crisis in the future.

According to the weekly apartment price trend report released by the Korea Real Estate Board on the 8th, as of the 4th, the apartment sales-to-demand index in provincial areas was 105.6, the highest since late March. Meanwhile, the metropolitan area recorded 105.4, slightly up from last week's 105.1 but still at the lowest level this year. The sales-to-demand index measures buyer sentiment, with 100 as the baseline; the closer to 200, the stronger the buying demand. This is the first time since the third week of December last year that the index in provincial areas has exceeded that of the metropolitan area.

Apartment prices in the provinces are also soaring. This week, the Seoul metropolitan area, including Seoul, recorded the same rate of increase as the previous week (0.34%) due to the impact of rising mortgage loan interest rates, but the provinces saw the rate of increase expand from 0.16% to 0.22% over the week. This was due to larger increases in provincial metropolitan cities excluding Daegu and all eight provinces nationwide.

View of apartments in downtown Seoul from Namsan, Seoul.
[Image source=Yonhap News]

As apartment buying demand expands in the provinces, gap investment is also on the rise. According to real estate information company Asil, gap investment has significantly increased over the past three months, centered around Gimhae in Gyeongnam, Pyeongtaek in Gyeonggi-do, Wonju in Gangwon-do, Pohang in Gyeongbuk, and Asan in Chungnam. Since apartment prices in the provinces are relatively affordable and regulations are weaker, speculative transactions aiming for short-term profits are flooding the market.

Apartments with official prices under 100 million KRW, which are exempt from acquisition tax surcharges, have become the hottest investment destinations this year, fueling the gap investment craze. According to the brokerage industry, gap investments involving small apartments purchased with only about 10 to 50 million KRW down payments are also increasing significantly. The problem is that as gap investment grows, there is a risk of a 'Kkangtong Jeonse' crisis during future housing price declines, where jeonse deposits exceed the market price of the home. If landlords who have made 'all-in' investments face deteriorating financial conditions due to government loan regulations and economic downturns, the number of tenants unable to recover their deposits may increase. This concern is even greater in the provinces, where the real demand base is weak.

Recently, a 'Kkangtong Jeonse Warning' has reportedly been issued within the brokerage industry itself. The Korea Association of Realtors notified its members that "due to the severe shortage of jeonse properties, transactions involving Kkangtong Jeonse are occurring frequently," warning of the risks involved in contract signing. If a broker fails to inform clients of the possibility of Kkangtong Jeonse before a transaction, they may be held civilly liable for negligence. The government is also closely monitoring the market situation. On the 5th, at a parliamentary audit, Minister of Land, Infrastructure and Transport Noh Hyung-wook said, "There are concerns about the risks of Kkangtong Jeonse due to gap investment," and added, "We will comprehensively implement countermeasures."

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