'Contract Renewal Request Right Expiration' Approaching... What About Tenant Housing Instability?

Contract Renewal Rights Expire This August
Significant Increase in Jeonse and Monthly Rent Prices Expected
Experts Advise "Sufficient Increase in Jeonse Listings Needed"

[Image source=Yonhap News]

[Asia Economy Intern Reporter Seohee Lee] As the expiration date of the lease renewal request right approaches, tenants' concerns about housing instability are growing. Due to interest rate hikes and loan regulations, tenants are finding it difficult to prepare for jeonse (lump-sum deposit lease) or monthly rent, and there is also a high possibility that landlords will pass on the increased financial burden to tenants during the new contract process.

Tenants who have used their lease renewal request right once since July 2020 are facing a large wave of contract renewals this coming August. Accordingly, landlords who had limited rent increases to within 5% two years ago are now more likely to significantly raise jeonse or monthly rent prices. For tenants, this effectively means bearing the accumulated market price increases over four years all at once. In fact, at the end of last November, the average jeonse price for apartments in Seoul (632.24 million KRW) surged 35.1% compared to August 2020 (467.95 million KRW), when the Lease Protection Act was fully enforced. Landlords, who have been unable to freely raise rents over the past two years, have set higher jeonse and monthly rent prices from the very first contract.

Tenants who need to find new jeonse or monthly rental housing within a few months are likely to cover the housing costs through loans. However, with the Bank of Korea recently raising the base interest rate consecutively, creating a high-interest rate environment, tenants are also burdened with increased interest payments. According to an analysis of microdata from Statistics Korea, the average monthly interest expense for households living in jeonse without home ownership in the first quarter of this year was 113,006 KRW, an increase of 21,337 KRW (23.3%) compared to one year ago (91,668 KRW). With further base rate hikes by the Bank of Korea becoming a foregone conclusion, tenants' interest burdens are expected to grow even more.

There is also concern that landlords who purchased homes through 'debt investment' (bit-tu) or 'all-in borrowing' (yeong-kkeul) will pass on their increased financial burdens to tenants. According to the financial sector, mortgage loan interest rates at commercial banks have entered the 7% range this month, the first time in 13 years since the 2009 global financial crisis. Given this situation, there are concerns that landlords who bought homes at low interest rates during the prolonged low-rate period of 2-3 years may pass on the increased costs to tenants.

Professor Taekgi Kim of Dankook University’s Department of Economics said, “It is natural for landlords facing increased tax or interest burdens to pass these on to tenants. Tenants who cannot bear this will be placed in vulnerable housing situations, such as moving to the outskirts.”

Experts advise increasing the supply of available properties to alleviate tenants' housing instability. Professor Kim said, “When there are few properties but many people want to move in, tenants end up paying high prices reluctantly. The supply of available properties must be sufficiently increased according to the principles of supply and demand. The housing instability of tenants expected in August must be minimized.”

The burden on tenants facing contract expiration is already becoming a reality. Mr. Choi (44), an office worker living in Gyeonggi Province, said, “As the jeonse contract expiration approached, I recently discussed with the landlord and was informed that the jeonse deposit would be raised by 90 million KRW. I already have a 200 million KRW jeonse loan, and the interest has increased by about 200,000 KRW per month. Thinking about taking out another 100 million KRW loan, I have no idea how much more interest I will have to pay.”

Meanwhile, on the 21st, the government announced a plan to exempt landlords who raise rent within 5% (win-win landlords) from the one-household-one-home capital gains tax exemption and the two-year residency requirement for the long-term holding special deduction. It also announced plans to increase jeonse supply by relaxing the actual residence conditions for apartments subject to the price ceiling system.

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