Will Monthly Rent Refugees Surge... Gangbuk Rents Rose More Than Gangnam

Jeonse Loan Interest Rate Surpasses 6%... Increase in Monthly Rent Conversion
Jeonse Index Declines While Monthly Rent Index Rises
Greater Volatility in Gangbuk Compared to Gangnam

[Asia Economy Reporter Hwang Seoyul] In Seoul's Nowon-gu, Apartment Complex A with an exclusive area of 84.79㎡ saw its monthly rent jump from 600,000 KRW in February with a deposit of 400 million KRW to 900,000 KRW in May with the same deposit. In Gangnam-gu, Apartment Complex B (59.92㎡) was leased in January with a deposit of 500 million KRW and monthly rent of 1.5 million KRW, which increased to 2 million KRW in May with the same deposit. The monthly rent in Nowon-gu's Complex A rose by 50% in four months, while Complex B in Gangnam-gu increased by 33% over five months.

Recently, with the base interest rate hike pushing jeonse loan interest rates above 6% for the first time in 12 years, demand for switching from jeonse (long-term deposit lease) to monthly rent has increased. However, monthly rents are also steadily rising, raising concerns that 'monthly rent refugees' will flood the northern Seoul area, where demand from low-income households is high.

According to the Korea Real Estate Board on the 18th, the Seoul apartment jeonse price index in June decreased by 0.04% compared to the previous month, while the integrated monthly rent price index rose by 0.07%. The Seoul apartment jeonse index had been on an upward trend since July 2019 but peaked at 103.5 in December last year and then fell to 103.1 last month. Conversely, the monthly rent price index continued to rise this year, reaching a new high of 102.1 last month.

This is interpreted as a result of a transaction freeze, a decrease in jeonse listings, and a surge in monthly rent demand due to rising loan interest rates. According to the Seoul Real Estate Information Plaza, the proportion of jeonse in apartment lease transactions last month was 58.65%, down from 59.60% in May. In June last year, it was 60.99%, and in May, 67.71%. A real estate agent in Nowon-gu said, "With the interest rate hike, the difference between loan interest and monthly rent is negligible, so many tenants are switching from jeonse to monthly rent."

The jeonse index fell more significantly in northern Seoul (-0.07%), where low-income demand is high, than in southern Seoul (-0.02%). Last month, northern Seoul saw jeonse prices decline mainly in Seodaemun-gu (-0.14%) and Gangbuk-gu (-0.14%), while southern Seoul showed stable or rising prices in the so-called Gangnam 3 districts: Gangnam-gu (0.01%), Seocho-gu (0.08%), and Songpa-gu (0.00%).

On the other hand, the monthly rent index in northern Seoul (0.10%) is rising more steeply than in southern Seoul (0.04%). Although jeonse prices are falling, due to the interest rate hikes, tenants have no choice but to opt for monthly rent, deepening the worries of low-income households. Nowon-gu and Dobong-gu, where low-income demand is high, recorded monthly rent index changes of 0.21% and 0.17% respectively last month, ranking first and second among all autonomous districts in terms of rate of change.

Comparing the average monthly rent last month to two years ago before the implementation of the Lease Protection Act, northern Seoul's average rose 20.95% from 993,000 KRW in June 2020 to 1,201,000 KRW last month, while southern Seoul's increased only 7.44% from 1,223,000 KRW to 1,314,000 KRW during the same period.

Seo Jin-hyung, co-representative of the Fair Housing Forum and professor at Gyeongin Women's University, said, "The trend of switching from jeonse to deposit-based monthly rent due to interest rate hikes and loan regulations is likely to become a mainstream phenomenon. Although it depends on supply and demand, the increase in deposit-based monthly rent is expected to be greater than that of jeonse prices." He added, "Ultimately, multi-homeowners should be encouraged to supply rental housing smoothly in the lease market."

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