Jeonse Rate Reaches Critical Threshold... Regional 'Kkangtong Jeonse' Warning Issued

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B, who is living on a lease in Apartment A in Haeun-dong, Changwon-si, Gyeongnam, is facing the expiration of the lease in August but has been told by the landlord that "it will be difficult to return the deposit on time." He moved in six years ago with a lease deposit of 120 million won, but the current house price has fallen below 100 million won. Even if the landlord sells the house, it will be difficult to return the deposit. If he renews the contract at the current market price, he should receive about 30 million won back, but the landlord says even this is difficult.

With the polarization of house prices between the metropolitan area and local regions and the soaring local lease deposit ratios, concerns about ‘Kkangtong Jeonse’ (empty-can lease) are growing in the local apartment market. Kkangtong Jeonse refers to a situation where the lease price is higher than the market sale price due to a drop in sale prices, causing tenants to be unable to recover their full deposit when renewing the lease or when the house goes to auction.

According to the Korea Real Estate Board on the 11th, the nationwide apartment lease deposit ratio in the first quarter of this year was recorded at 68.9%. The industry generally considers that when the lease deposit ratio exceeds 70%, the risk of Kkangtong Jeonse is high. The nationwide lease deposit ratio has been declining since the first quarter of last year (70.4%). However, the situation differs when looking separately at the metropolitan area and local regions. The lease deposit ratio in the metropolitan area in the first quarter was 63.6%, showing a downward trend since the first quarter of 2019.

On the other hand, the eight local provinces excluding the metropolitan area recorded 77.1%. The highest lease deposit ratio nationwide was Jeonbuk (79.0%), followed by Gyeongbuk (78.8%), Chungnam (78.8%), Chungbuk (77.9%), Jeonnam (77.4%), and Gangwon (77.0%). Looking at individual cities and counties, Jeonnam Gwangyang (84.9%), Chungnam Dangjin (83.4%), Jeonnam Mokpo (83.3%), Gyeongbuk Pohang (82.6%), Chungnam Seosan (82.6%), and Gangwon Chuncheon (82.6%) all exceeded 80%.

The decline in the lease deposit ratio in the metropolitan area and the rise in local regions are interpreted as results of the skyrocketing house prices in the metropolitan area. Over the past five years, house prices have generally risen significantly, but the gap in the increase between the metropolitan area and local regions has been even greater. In this process, the gap between local sale prices and lease prices has widened considerably. According to the KB Kookmin Bank monthly housing price trend time series statistics, the average apartment price in the metropolitan area rose from 408.38 million won five years ago to 807.35 million won last month, nearly doubling. In particular, in Seoul, the price more than doubled from 602.15 million won to 1.27722 billion won during the same period. In contrast, local regions excluding the metropolitan area and major cities saw only about a 10% increase.

Concerns about a housing market slump, such as an increase in unsold houses, also appear to be affecting the local lease deposit ratio. According to the Ministry of Land, Infrastructure and Transport, as of the end of March, the number of unsold houses nationwide was 27,949, an increase of 10.8% compared to the previous month. Most of these are in local areas such as Daegu and Gyeongbuk. Since the risk of Kkangtong Jeonse has significantly increased, experts advise checking the lease deposit ratio before signing a contract and mandatorily subscribing to lease deposit insurance. Go Jun-seok, CEO of J-Edu Investment Advisory, said, "When looking for a house, it is essential to check whether lease deposit insurance can be subscribed to, and when signing a contract, it is necessary to prepare deposit protection measures such as a fixed date certificate and leasehold rights registration."

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