As House Prices Fall, Concerns Grow Over Increasing Number of "Kkangtong" Homes Due to Delayed Deposits

The number of houses purchased this year solely with loans and jeonse deposits exceeds 10,000 units

If house prices fall further in two years

Many of these may turn into "empty jeonse" (Kkangtong Jeonse) cases

[Asia Economy Reporters Minyoung Kim, Hyunju Lee, Dongpyo Kim] This year, more than 10,000 cases of home purchases were made without any personal funds, relying solely on loans and jeonse deposits. Houses purchased through so-called 'gap investment' are highly likely to become "empty jeonse" cases, where the sum of the loan and deposit exceeds the house price, especially if house prices decline.

According to real estate transaction report data submitted by the Korea Real Estate Board to Kang Daesik, a member of the People Power Party, on the 6th, the number of reports where the combined amount of mortgage loans and rental deposits exceeded 100% of the house price increased by 41%, from 7,994 cases in 2020 (March to December) to 11,303 cases from January to July this year. In 2021, when gap investment was rampant before the housing market cooled, there were 28,264 cases. During the same period, reports where the combined amount of loans and deposits was at least 80% of the house price surged nearly threefold from 38,167 cases in 2020 to 117,279 cases in 2021, and were recorded at 39,065 cases this year.

The fact that the sum of mortgage loans and rental deposits exceeds the house price means that the homeowner purchased the house without any personal funds, relying solely on loans and tenants' deposits. Such houses are highly likely to be unable to return the tenants' deposits fully and on time if house prices fall and the owner tries to sell the property. Typically, houses where the sum of loans and deposits is similar to or exceeds the house price are considered "empty jeonse" (Kkangtong Jeonse).

Empty jeonse cases are mainly concentrated in the Seoul metropolitan area. In Seoul, reports where the sum of loans and deposits exceeded the house price increased threefold from 2,258 cases in 2020 to 6,990 cases in 2021, and were identified as 2,455 cases up to July this year. In Incheon, where 20s and 30s buyers aggressively chased purchases last year, the number surged more than fivefold from 1,207 cases in 2020 to 6,523 cases last year. This year, it recorded 2,593 cases, doubling compared to two years ago. In Gyeonggi Province, the number increased 2.5 times from 3,288 cases in 2020 to 8,355 cases in 2021, then recorded 3,606 cases this year.

Assemblyman Kang said, "Due to the failure of the Moon Jae-in administration's real estate policies, house prices rose sharply, leading to rampant gap investment and increasing concerns about 'empty jeonse' cases," adding, "If there are areas that require policy supplementation, we will make adjustments to prevent damage to tenants."

Reports where the combined amount of mortgage loans and rental deposits exceeded 80% of the house price surged from 38,167 cases in 2020 (March to December) to 117,279 cases last year. This year, up to July, 44,260 cases were recorded. This means that when purchasing a house, only 20% of the purchase price was covered by personal capital, with the rest financed through loans and rental deposits.

In the Seoul metropolitan area, reports where the sum of loans and rental deposits reached 80% of the house price were 9,990 cases in Seoul up to July this year, an increase from 9,360 cases in 2020 but a decrease from 23,494 cases in 2021. In Gyeonggi Province, the number rose from 16,787 cases in 2020 to 32,447 cases in 2021, then was recorded at 11,844 cases up to July this year. In Incheon, the number increased more than fourfold from 4,152 cases in 2020 to 19,466 cases in 2021, and was 6,698 cases this year.

The problem arises when the contract period ends for houses where the combined amount of loans and rental deposits is between 80% and 100%. If the jeonse market price falls compared to the contract time due to the recent downward trend in house prices, homeowners may find it difficult to return the deposits to tenants. Tenants who have subscribed to jeonse deposit insurance can be compensated through public institutions such as the Housing and Urban Guarantee Corporation (HUG), but there are tenants without such insurance, raising concerns about potential damages.

According to KB Kookmin Bank's housing price trend survey, the average nationwide housing sale price in August fell by 0.14% compared to the previous month. Seoul's housing prices fell by 0.07% in August, marking the first decline in three and a half years since February 2019. The jeonse market also continues to weaken. According to the Korea Real Estate Board, as of August 26, the jeonse price for apartments in Seoul fell by 0.09%, a larger decline than the previous week (-0.06%). The market expects that further interest rate hikes will push house prices down even more. The Korea Research Institute for Human Settlements analyzed that a 1 percentage point increase in interest rates can reduce apartment sale prices by up to 5.2%.

The number of houses purchased this year solely with loans and jeonse deposits exceeds 10,000 units, and considering that jeonse contracts typically last two years, if house prices fall further in two years, a significant portion of these houses may turn into empty jeonse cases.

Professor Seojinhyung from Gyeongin Women's University (co-representative of the Fair Housing Forum) said, "If house prices rise in the future, jeonse prices will also rise, allowing landlords to find new tenants and return deposits. However, if house prices stabilize, the number of empty jeonse cases may increase, leading to situations where landlords cannot return deposits."

Generally, the market considers a jeonse rate (the ratio of jeonse price to sale price) above 80% as a high risk for empty jeonse. Park Wongap, senior real estate expert at KB Kookmin Bank, said, "The big difference between the global financial crisis and this real estate downturn is the high jeonse rate, which is 20 percentage points higher in the Seoul metropolitan area. The rise in jeonse rates means tenants have lent landlords a lot of money interest-free, and if the house becomes an empty house, tenants are put at risk."

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