'Apartments to Villas, Jeonse to Wolse'... The Shifting Balloon Effect

Villa Price Increase Surges as Apartment Prices Stall
Gap Investment Relatively Easy and Loan Regulations Weaker
Monthly Rent Rising in Rental Market
Concerns Over Accelerated Jeonse to Monthly Rent Shift Next Year

Real estate listings posted at licensed real estate offices in Seoul [Image source=Yonhap News]

Although apartment price growth rates have shrunk for two consecutive months due to the government's tightened loan regulations, demand for villas and other multi-family housing has surged, causing their prices to rise sharply. In the housing rental market, while the increase in jeonse (long-term deposit lease) prices has slowed, monthly rent hikes have accelerated. As apartments and jeonse prices stagnate, the 'balloon effect' is shifting toward villas and monthly rents, increasing the housing burden on low-income households.

From Apartments to Villas... The Balloon Effect Intensifies

According to the real estate industry on the 16th, recent perceptions of apartment prices peaking and strengthened loan regulations have concentrated buying demand on relatively affordable villas. According to the Korea Real Estate Board, multi-family housing including villas rose by 0.55% last month, expanding the growth rate for six consecutive months since April (0.20%). Although this is lower than the 0.83% increase in apartment prices during the same period, it contrasts with apartments, which have seen a decline in growth rate for two consecutive months.

Demand for 'owning a home' remains strong, but with strict loan regulations raising the barrier to purchasing apartments, buying demand has shifted to villas, which are relatively less burdensome. Villas also have a smaller price gap between sale and jeonse prices, making them advantageous for 'gap investment.' In fact, frontline real estate agents report an increase in investments in villas in key areas with redevelopment potential or purchases for gifting to children.

The reversal in transaction volumes between apartments and villas continues. According to the Seoul Real Estate Information Plaza, since January this year, villa transactions in Seoul (5,857 cases) have surpassed apartment transactions (5,796 cases), and this trend has persisted for 11 consecutive months. Considering that until last year, apartments with higher asset value had more transactions, this is an unusual phenomenon. Even this month, apartment sales amounted to only 141 cases, while villas traded 646 cases.

Ham Young-jin, head of the Zigbang Big Data Lab, diagnosed, "Villas are more flexible under loan regulations and offer a wider range of options in terms of size, and investment for redevelopment project occupancy rights is also increasing, which seems to be driving the growing buying demand."

Apartment areas in Jung-gu and Seongdong-gu viewed from Namsan, Seoul [Image source=Yonhap News]

Intensified Shift from Jeonse to Monthly Rent

The 'balloon effect' is also growing in the housing rental market. Since the introduction of the new lease law at the end of July last year, the soaring jeonse price growth has recently slowed, while monthly rents have instead increased. Last month, Seoul apartment jeonse prices rose by 0.63%, down from 0.68% the previous month, but monthly rents increased sharply not only in Seoul (0.30%→0.32%) but also in most other regions.

Many analyses attribute this rise in monthly rents to the unintended consequences of regulations. As homeowners face increased holding taxes such as comprehensive real estate tax and property tax, there is a growing trend to convert jeonse leases into monthly rents to pass the tax burden onto tenants. Areas with good school districts and transportation, such as Gangnam, Seocho, Songpa, and Yangcheon districts, are experiencing even faster shifts to monthly rent. The industry predicts that after the two-year contract renewal right expires at the end of July next year, monthly rents will increase even more during new contract negotiations.

Recently, the government's tightened loan regulations have also weakened tenants' ability to secure funds, which is expected to accelerate the rise in monthly rents. Additionally, there are many forecasts that related regulations may be further strengthened, including suspensions of high-value jeonse loan programs. Therefore, it is unlikely that the upward trend in monthly rents will ease anytime soon. A Korea Real Estate Board official explained, "Due to the shortage of jeonse listings, demand for monthly rent is increasing."

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