[Jeonse Fraud Measures] Malicious Rentals Increase Fivefold in 2 Years... Focus on Establishing a 'Safe Jeonse' System

Taking off with Jeonse deposits,

Malicious multi-home landlords increasing annually

HUG’s financial leakage also rising

[Asia Economy Reporters Cha Wanyong, Kim Minyoung] Due to the impact of interest rate hikes and economic recession, real estate prices have turned downward, raising concerns about Jeonse fraud such as 'empty shell Jeonse'. In fact, cases are increasing where landlords collude with real estate agents or sales agents to induce false contracts and then take off with Jeonse or monthly rent deposits from tenants. The victims lose their homes and struggle to survive. This is a result of a flawed Jeonse market system where the social safety net does not function properly.

In response, the government has prepared and announced a 'Three Major Strategies to Prevent Jeonse Fraud' to protect tenants from Jeonse fraud. The main points include prevention measures to protect tenants from damage, victim support, and strengthening punishment for related parties. Although the announcement mainly focuses on measures to prevent Jeonse fraud, it is evaluated as a plan to build a 'safe Jeonse' system in a broader sense.

◆Malicious landlords increased fivefold in two years... crackdown and punishment to be strengthened= The number of 'malicious multi-home landlords' who disappear without returning tenants' deposits is increasing every year. According to the Housing and Urban Guarantee Corporation (HUG), the number of malicious landlords rose from 44 in July 2020 to 152 at the end of 2021, and reached 203 by the end of July this year (cumulative). This is nearly a fivefold increase in two years. HUG classifies landlords who do not return Jeonse deposits to tenants and for whom HUG has paid on their behalf three or more times but who have cut off contact and show no intention of repayment as malicious landlords. A HUG official said, "Since 2021, the number of malicious landlords has been increasing by 3 to 5 each year." Professor Seo Jin-hyung of Gyeongin Women's University (co-representative of the Fair Housing Forum) said, "In 2021, due to the rapid rise in Jeonse prices and loan regulations, the demand from tenants seeking Jeonse increased, and as the Jeonse market became unstable, malicious landlords exploiting tenants' urgent need for Jeonse housing also increased."

As of July this year, the total 'accident amount' where malicious landlords failed to return deposits to tenants on time reached 782.4 billion KRW, of which HUG paid 727.5 billion KRW on behalf of landlords. The unrecovered amount from the paid deposits is 623.5 billion KRW, accounting for 85% of the amount HUG paid. Normally, if a landlord fails to return the deposit on time, HUG pays the tenant on their behalf and then claims reimbursement from the landlord. However, many malicious landlords cannot be contacted, forcing HUG to bear the entire amount. As malicious landlords increase, HUG’s financial leakage problem becomes more serious.

As tenant damages due to the increase in malicious landlords surge, the government has decided to strengthen the crackdown on Jeonse fraud. Noting that Jeonse fraud crimes are becoming increasingly organized and sophisticated, a government-wide cooperation system involving the Ministry of Land, Infrastructure and Transport and the National Police Agency will be established. Also, a 'Jeonse Damage Support Center' opening ceremony will be held this month, and related agencies will sign a memorandum of understanding.

Penalties for Jeonse fraud will also be strengthened. Landlords involved in Jeonse fraud will be denied registration as rental business operators, and existing registered operators will have their registration canceled. Furthermore, disqualification periods and grounds for revoking qualifications will be expanded for licensed professionals such as real estate agents and appraisers. Additionally, to recover illicit gains, HUG will operate a dedicated team to focus on collecting claims from malicious debtors.

◆Strengthening tenants' legal rights and preparing victim support measures= The government has also prepared a safety net system to prevent Jeonse fraud from occurring in the first place. First, it will address information asymmetry between contracting parties and improve information accessibility through a mobile application. The 'Self-Diagnosis Safe Jeonse App,' scheduled for release in January next year, will provide information on Jeonse prices, landlords' tax delinquency status, rental guarantee subscription status, and whether the property is illegal or unauthorized construction.

Market monitoring functions will also be expanded. First, compliance with guarantee subscription by registered rental business operators, which has been mandatory since August last year, will be continuously monitored. Also, a system will be established to reward (e.g., 500,000 KRW) real estate agents or others who report suspicious Jeonse fraud listings to local governments.

The housing price assessment system will be improved to preemptively block the influx of empty shell Jeonse. The application rate of official prices will be lowered from the current 150% to 140%, and the appraiser association’s recommendation system will be utilized during appraisals. Detailed management will also be implemented for areas with high Jeonse price ratios. Based on monthly actual transaction data, Jeonse price ratios for apartments and villas will be expanded and disclosed nationwide at city/county/district levels, and in the metropolitan area at town/township/neighborhood levels. Guarantee accident status and auction winning bid status will also be provided at city/county/district levels.

The current priority repayment amounts under the Housing Lease Protection Act (50 million KRW in Seoul, 43 million KRW in overcrowding control zones, 23 million KRW in metropolitan cities, and 20 million KRW elsewhere) will also be raised within this year. Additionally, when banks execute mortgage loans, they will check the confirmed date status of the property and consider deposits of tenants without legal priority rights, in cooperation with major commercial banks.

Considering that unexpected Jeonse damages may occur despite proactive preventive measures, the government will also provide comprehensive support for victims. A 'Jeonse Damage Support Center' will be established to offer one-stop services including financial services, temporary housing arrangements, rental housing admission, and legal counseling for Jeonse fraud victims.

Starting next year, using the Housing and Urban Fund, ultra-low interest loans in the 1% range will be provided to tenants who suffered Jeonse fraud. The loan limit is 160 million KRW per household, with a maximum term of 10 years. For those who have no immediate place to live due to Jeonse fraud, emergency housing will also be provided. HUG will offer forcibly managed houses at less than 30% of market price as temporary housing.

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