[Exclusive] 1.6 Trillion Won in Jeonse Deposits Repaid on Behalf of Landlords... Record High Substitute Payment Amount in 'Incheon' Where Yeongkkeul Borrowers Disappeared

Surge in Guarantee Institution’s Subrogation Payments

350.9 Billion KRW as of July This Year

Jeonse Fraud Spreading to Seoul Metropolitan Area and Major Provincial Cities

[Asia Economy Reporters Minyoung Kim, Chaeun Koo] Recently, due to the spread of “empty shell” jeonse and jeonse fraud, the amount of subrogation payments made by private and public guarantee institutions to tenants on behalf of landlords has surpassed 1.6 trillion KRW (cumulative). It is expected that the subrogation payment amounts in major provincial metropolitan cities such as Gwangju, Ulsan, and Daegu, as well as the Seoul metropolitan area including Seoul and Gyeonggi, will reach record highs this year. The risk of deposit accidents caused by jeonse fraud is spreading nationwide. There are calls for urgent establishment of practical systems to screen out malicious landlords to prevent financial leakage at the Housing and Urban Guarantee Corporation (HUG).

◆ 1.6 Trillion KRW in Jeonse Deposits Repaid on Behalf of Landlords... Jeonse Fraud Targeting Young Adults on the Rise = According to data submitted by HUG to Rep. Changhyun Yoon of the People Power Party, commissioned by Asia Economy on the 30th (subrogation payment amounts by metropolitan city and province), the amount repaid by public and private guarantee institutions to tenants on behalf of landlords who failed to return jeonse deposits after lease contracts expired has exceeded 1.6 trillion KRW this year. This figure covers subrogation payments from 2018 through July of this year.

The scale of deposits repaid by the government has rapidly increased since surpassing 1 trillion KRW in 2020. This indicates a growing number of tenants unable to recover their deposits from landlords. Subrogation refers to the process where, after the lease period ends and the landlord fails to return the jeonse deposit, the institution pays the deposit to the tenant on the landlord’s behalf. Since subrogation occurs after guarantee claim reviews and other procedures following accident reports, the accident amount and subrogation amount may differ.

The subrogation amount recorded up to July this year is 350.9 billion KRW. Considering this is a first-half statistic and the recent increase in “empty shell” jeonse where jeonse prices are similar to or exceed sale prices, this year’s subrogation amount is expected to surpass last year’s 504.3 billion KRW.

The subrogation amount surged from 56.3 billion KRW in 2018 to 286.8 billion KRW in 2019, then increased to 439.9 billion KRW in 2020 and 504.3 billion KRW in 2021, showing a steady upward trend. HUG explains that the increase in the number of product subscriptions correlates with the rise in unreturned deposit amounts (accident amounts) and subrogation payments, but even considering this, the growth rate is steep. Particularly, the increase in subrogation amounts among the 20s and 30s age group indicates a rise in jeonse fraud targeting young adults whose deposits often represent their entire assets.

Professor Jinhyung Seo of Gyeongin Women’s University (co-representative of the Fair Housing Forum) analyzed, “People in their 20s and 30s are vulnerable to such fraud because they lack experience in rights analysis and real estate transactions and many belong to housing-vulnerable groups.”

◆Incheon, Where “Yeongkkeul” Buyers Have Disappeared, Records Highest Subrogation Amount Amid Falling House Prices = By region, this year’s subrogation amounts are expected to reach record highs not only in the Seoul metropolitan area but also in major provincial metropolitan cities. Incheon’s subrogation amount in the first half of the year has already exceeded last year’s total. The amount of deposits repaid by HUG on behalf of landlords in Incheon this year reached 54.77 billion KRW, marking an all-time high. Incheon was a region that led last year’s house price rise due to aggressive “Yeongkkeul” (all-in) buyers. However, as of July this year, house prices have fallen by 0.46% (according to the Korea Real Estate Board), and jeonse prices have also weakened.

During the same period, subrogation payments in Seoul amounted to 146.6 billion KRW, more than doubling compared to 2019, while Gyeonggi’s amount reached 119 billion KRW by July, nearly 70% of last year’s total of 159 billion KRW. This is attributed to the real estate market downturn making it harder to find tenants at market prices and the increase in “empty shell” jeonse where deposits are similar to or exceed sale prices.

Subrogation amounts are also rising in major metropolitan cities. Gwangju’s subrogation amount surged more than threefold from 660 million KRW last year to 2.18 billion KRW this year. Daegu, which has experienced a decline in house prices since last year, recorded 5 billion KRW in subrogation payments, close to last year’s 5.3 billion KRW. Ulsan’s amount increased to 1.8 billion KRW from 1 billion KRW last year.

Meanwhile, the Ministry of Land, Infrastructure and Transport plans to announce measures to prevent jeonse fraud this week, as tenant damages caused by malicious landlords committing repeated jeonse fraud have sharply increased. Possible measures include requiring landlords to submit tax payment certificates when signing lease contracts and verifying tax delinquency through licensed real estate agents.

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