[The Editors' Verdict] The Twilight of Jeonse and the Era of Monthly Rent Refugees

Soaring Jeonse Prices and Loan Burdens
Record-High Volume and Share of Monthly Rent Transactions
Housing Insecurity Persists for Ordinary Citizens

"Jeonse will become a thing of the past." In early 2016, former President Park Geun-hye mentioned the "end of Jeonse theory" during a national policy seminar. However, even six years later, the Jeonse system remains a major means for securing housing. Moreover, fraud schemes targeting tenants have become increasingly sophisticated and intelligent, with annual damages reaching astronomical amounts in the trillions of Korean won. This is why the current government, just four months after its inauguration, declared a so-called war on Jeonse fraud and vowed to mobilize all government resources to eradicate it.

The Jeonse system can be seen as a mechanism where the interests of tenants and landlords align well. Tenants can secure a home with a relatively small amount of money even if they lack funds to purchase, while landlords can utilize the Jeonse deposit in addition to capital gains from owning the property. Especially from the tenant's perspective, Jeonse has long served as a housing ladder for the housing-insecure lower-income groups, since the full deposit is returned at the end of the contract. However, this positive function has also led to side effects, as landlords have been able to increase their housing holdings through gap investments using Jeonse deposits, resulting in landlords becoming multi-homeowners while tenants continue to move from one Jeonse to another.

Until early this year, there were significant concerns about a Jeonse crisis in August. It was feared that when the lease renewal rights expired and properties were put on the market, Jeonse prices would soar. But the recent situation is quite different. Jeonse prices have already risen sharply, and with increased loan burdens due to interest rate hikes, more people are opting for monthly rent. Additionally, with a significant increase in move-ins centered around the Seoul metropolitan area, demand is decreasing while supply accumulates. This is why claims that the Jeonse era is ending and the monthly rent era is approaching have emerged.

In fact, in the first half of this year, the total number of apartment Jeonse and monthly rent transactions in Seoul exceeded 116,000, marking the highest since statistics began in 2011. This was largely due to a surge in monthly rent transactions. Monthly rent transactions have steadily increased since the second half of 2017, surpassing 40,000 for the first time in the second half of last year from 28,043 in the first half of 2020. Nationwide, the proportion of monthly rent in the first half of this year reached 41.8%, setting a record high. The main reason tenants who previously preferred Jeonse are now favoring monthly rent is the recent sharp rise in interest rates, which has increased Jeonse loan interest rates. Uncertainties in the Jeonse market, such as concerns over "empty Jeonse" (Kkangtong Jeonse), have also fueled the shift to monthly rent, bringing the "end of Jeonse theory" back into discussion.

The problem is that as monthly rent continues to soar, tenants' housing insecurity remains unresolved. Especially, monthly rents for small officetels and villas (multi-family housing) where many people in their 20s and 30s live are rising steeply, increasing the housing cost burden on young workers and job seekers with relatively low incomes. The purpose of real estate policy is "housing stability." Therefore, real estate policies are commonly referred to as "housing stability measures." While government measures have focused on visible issues such as prices and fraud, the underlying housing instability may worsen, potentially producing a wave of "monthly rent refugees."

Jo Gang-wook, Head of Construction and Real Estate Department

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