From Apartments to Villas, From Jeonse to Monthly Rent, Pushed from Seoul to the Outskirts

Soaring Housing Prices and Accumulated Regulatory Side Effects

Apgujeong Hyundai Apartment_Real Estate Reference Photo / Photo by Hyunmin Kim kimhyun81@

Ordinary housing demanders have borne the full brunt of the side effects caused by the skyrocketing housing prices over the past few years and market distortions due to various regulations. Those who lived in Seoul were pushed to the outskirts of Gyeonggi Province, and those dreaming of owning an apartment turned their attention to villas. The shift from jeonse (long-term lease) to monthly rent has also accelerated, making the burden of monthly rent heavier than ever.

◆Unusual Phenomenon of Transaction Volume: 'Villa > Apartment'= The phenomenon where villa (multi-family and row houses) sales surpass apartment sales in the Seoul housing market continues into the new year.

According to the Seoul Real Estate Information Plaza on the 1st, last month there were 1,447 villa sales (based on contract date) in Seoul, about 2.7 times the 537 apartment sales. Typically, apartment sales volume is 2 to 3 times higher than that of villas. This is because villas are perceived as less liquid and their prices do not rise easily due to lower transaction frequency.

An industry insider said, "As apartment prices surged rapidly and jeonse prices also soared quickly, demand for residences shifted to relatively affordable villas, solidifying the reversal in transaction volumes."

According to KB Kookmin Bank's monthly price statistics, the average apartment price in Seoul last month was 1,259.69 million KRW, while the average villa sale price was 345.59 million KRW, about one-third of the apartment price.

Especially from this year, new loans exceeding a total loan amount of 200 million KRW are subject to the individual Debt Service Ratio (DSR), making it more difficult for many to obtain loans and buy homes. Also, villas priced under 900 million KRW allow non-homeowners to receive separate jeonse loan funds, unlike apartments.

An industry insider explained, "Since last year, Seoul apartment prices have surged sharply and the accumulated regulations have led the housing market into a transaction freeze. Amid this, due to the impact of the Rental 2 Act (contract renewal request right and rent ceiling system), jeonse prices have remained high, prompting non-homeowners to purchase more affordable villas rather than apartments."

◆'Jeonse Turning into Monthly Rent'... Growing Monthly Rent Burden= The rental market is rapidly witnessing the 'end of jeonse.' This phenomenon has accelerated due to a combination of factors including the sharp rise in jeonse prices, stricter jeonse loan regulations, increased holding tax burdens, and landlords passing on tax burdens to tenants.

According to an analysis by Real Estate R114 of the Ministry of Land, Infrastructure and Transport's actual transaction data, from June to November last year after the implementation of the rental reporting system, the total number of rental transactions in Seoul housing (including apartments, detached houses, multi-family, row houses, and villas) was 136,184.

For renewal contracts (37,226 cases), monthly rent contracts accounted for 8,152 cases (21.9%), about one-third of the 29,074 jeonse contracts (78.1%). In contrast, among new contracts (98,958 cases), monthly rent contracts made up 48.5% (47,973 cases), nearly half of the new contracts. Notably, the monthly rent proportion in new contracts (48.5%) was more than twice that of renewal contracts (21.9%).

The Korea Development Institute (KDI), a government research institute, stated in its '2021 Q4 Real Estate Market Trends' report released last month, "Due to the burden of soaring jeonse prices throughout the year and rising loan interest rates, some jeonse demand is shifting to monthly rent."

KDI compared new and renewal contract trends in Seoul's jeonse and monthly rent transactions from June to November last year and analyzed changes in the rental market after the Rental 2 Act. In monthly rent transactions, when the contract renewal request right was used, the deposit remained at 300 million KRW while the monthly rent rose from 870,000 KRW to 940,000 KRW. When the renewal right was not used, the deposit increased from 350 million KRW to 390 million KRW and the monthly rent rose from 700,000 KRW to 930,000 KRW.

◆Soaring Housing Prices Drive Residents from Seoul to Gyeonggi Province= The structural shock in the housing market is also affecting population movement. Although the total volume of population movement has decreased due to reduced housing transactions, the number of people leaving Seoul has actually increased. This is because more people have left Seoul due to the surge in housing prices.

According to Statistics Korea's '2021 Domestic Population Movement Statistics,' the total number of movers nationwide based on move-in reports last year was 7,213,000, a decrease of 522,000 (6.7%) from 2020. This is the first decline in population movement in two years since 2019. The population movement rate, which indicates the number of movers per 100 people, was 14.1%, down 1.0 percentage point from the previous year. Statistics Korea explained, "Population aging and reduced housing transactions are the causes of the decline in population movement."

On the other hand, Seoul's net outflow (out-migrants minus in-migrants) was 106,243, an increase of 41,393 (63.8%) from 64,850 in 2020. This means that even though overall population movement decreased, more people left Seoul. Seoul's population movement rate was -1.1%.

Those who packed up from Seoul headed to Gyeonggi Province. Gyeonggi had more in-migrants than out-migrants, with 150,517 new arrivals. It was found that two out of three people (63.8%) who left Seoul moved to Gyeonggi.

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