[Second Half Housing Market Review] Not Living on Jeonse but 'Geumse Living'..."The Monthly Rent Conversion of Jeonse Will Continue"

[Image source=Yonhap News]

Seoul Apartment Jeonse Prices Jump 200 Million Won in Two Years

Rising Interest Rates Likely to Amplify Interest Cost Transfer

Measures Needed for Households Affected by Contract Renewal Rights

[Asia Economy Reporter Kim Min-young] "Living on Jeonse has now become ‘Geum (Gold) Living’."

This is a recent metaphor for the Jeonse market. It implies that Jeonse prices have risen like gold prices, and the burden of interest payments has increased due to rising interest rates.

The situation for tenants living on Jeonse is unlikely to improve in the second half of this year. Experts expect the ongoing trend of ‘Jeonse turning into monthly rent’ in the rental market to continue. This is because with loan interest rates soaring, tenants may find it more advantageous to pay monthly rent to landlords rather than taking out Jeonse loans and paying interest to banks. 'Mid-Year Housing Market Review'

This phenomenon has been partly driven by the sharp rise in Jeonse prices. According to the Korea Real Estate Board on the 10th, the average Jeonse price for Seoul apartments was 434 million won in August 2018 but rose to 630 million won in May this year, an increase of nearly 200 million won in two years. During the same period, Jeonse prices for apartments in Incheon increased from 198.8 million won to 286 million won, up about 87 million won. In the Gyeonggi region, tenants who could sign a contract for 242 million won two years ago now need to prepare about 380 million won, an increase of approximately 138 million won.

Park Won-gap, Senior Real Estate Specialist at KB Kookmin Bank, who referred to Jeonse living as Geum Living, said, "Tenants who can gather even a small amount of deposit through loans or spare funds will choose semi-Jeonse," adding, "If that is difficult, they will opt for semi-monthly rent or pure monthly rent."

While movements to transfer tax burdens due to strengthened property holding taxes have been observed in the rental market, it is argued that the impact of interest cost transfer will become more prominent in the second half of the year due to rising interest rates. Yoon Ji-hae, Senior Researcher at Real Estate R114, said, "The recent Jeonse crisis mainly concerns tenants who must renew their contracts," adding, "Although visible Jeonse price fluctuations are minimal, multiple layers of prices exist, and tenants bear the burden of paying Jeonse prices converging to market rates." This explains why some tenants reluctantly shift from Jeonse to monthly rent.

She explained, "From the landlord’s perspective, the increased financial burden due to rising interest rates will lead to raising monthly rents or transferring interest costs to tenants," concluding, "Ultimately, during periods of rising interest rates, both landlords and tenants face increased housing costs."

On the other hand, some believe that the Jeonse market, like the sales market, will stabilize. Lee Hyun-chul, Director of the Apartment Cycle Research Institute, said, "Considering the sales market, many non-homeowners bought homes in late 2020 to 2021," adding, "As tenants in the rental market purchased homes en masse, the number of tenants decreased." For this reason, he argued that the Jeonse and monthly rent market in the second half of the year will show a stabilization trend rather than the feared Jeonse crisis.

Experts advise that even if the feared Jeonse crisis does not occur, measures should be promptly prepared for households vulnerable in the unstable Jeonse and monthly rent market. According to Real House, the average rate of households using the contract renewal right in Seoul last year was 18.25%. When the contract renewal right is exercised, price caps are lifted for the next contract. Tenants who signed a four-year Jeonse contract must either raise the Jeonse deposit all at once according to surrounding market prices or move out to renew their lease.

Kim Sun-ah, Manager at Real House, expressed concern, saying, "It is expected that about 2,000 to 3,000 Jeonse contracts exercising the contract renewal right will be signed monthly (estimated based on the average number of rental transactions in Seoul in 2021), which will accelerate the exodus of Jeonse refugees from Seoul."

Kim Deok-rye, Policy Research Director at the Korea Research Institute for Housing and Urban Affairs, urged, "Measures must be swiftly prepared for households affected by the contract renewal right," and suggested, "A temporary easing of deposit loan regulations for Jeonse funds should be considered to enable households struggling with soaring Jeonse prices to move without problems."

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