Transaction Cliff Leads to Abandoned Sales, Tenants Pay Only Monthly Rent... Accumulating Jeonse Listings

Sale listings decreased by 9% while Jeonse increased by 45%
Jeonse prices are falling faster
Side effects of the reversed Jeonse crisis

[Asia Economy Reporter Kim Hyemin] Mr. A, who purchased an old apartment in the Seoul metropolitan area for investment purposes early last year, planned to sell it earlier this year as the real estate market entered a downturn. He put the property on the market to coincide with the tenant's move-out date, but it did not sell, so he eventually withdrew the listing and converted it into a rental property. Initially, it was listed as a jeonse (long-term lease). However, after more than three months without any interested tenants and hearing from a real estate agent that monthly rentals occasionally found tenants, he switched to monthly rent and found a tenant within three days. Mr. A said, "I managed to put out the urgent fire, but I originally wanted to receive jeonse, so I feel disappointed," adding, "I felt the slump in the jeonse market."

Jeonse listings are piling up in the metropolitan area. On the other hand, sales listings are sharply decreasing. This phenomenon occurs as homeowners give up on selling amid a transaction freeze, while tenants only seek monthly rentals. As listings accumulate, the rate of jeonse price decline is also accelerating. In the second half of this year, the nationwide scheduled housing supply is 200,000 units, raising concerns that the reverse jeonse crisis caused by increased listings may worsen.

According to Apartment Real Transaction Price (Asil), a real estate big data company, as of the day before, the number of jeonse listings in Seoul was 44,142, an 18% increase compared to a month ago. This means about 6,700 more listings piled up in one month. In July, when a jeonse shortage was anticipated, listings increased by nearly 43% compared to three months prior. The situation in Gyeonggi-do is no different. Jeonse listings in Gyeonggi, which were around 42,000 in July, are now approaching 60,000. In Incheon, listings increased by about 1,200 during the same period, a 25% rise compared to three months ago.

Conversely, sales listings are on a downward trend. Seoul's sales listings decreased by 2,000 units in one month, a 4.5% drop. Compared to three months ago, listings fell from 63,998 to 58,116, a decline of over 9%. During the same period, Gyeonggi saw a 4.7% decrease, and Incheon experienced a 1.9% decline.

The increase in jeonse listings in the market appears largely due to homeowners who, unable to find buyers, withdrew their properties and converted them into jeonse rentals. As rapid interest rate hikes led buyers to adopt a wait-and-see attitude, many chose to turn to the rental market rather than aggressively lowering prices to sell. On the other hand, from the tenant's perspective, a strong preference for monthly rent has contributed to the increase in jeonse listings. A representative from a real estate agency in Seongbuk-gu said, "Homeowners want to either sell outright or list as jeonse for cash flow reasons, but there are not many interested parties," adding, "In contrast, inquiries for monthly rentals are steadily coming in."

As jeonse listings rapidly accumulate, the rate of price decline is steeper than that of sales or monthly rent. According to Real Estate R114, as of last month, Seoul apartment sales prices decreased by 0.22% compared to the previous month, while jeonse prices fell by 0.41%. In October as well, the decline in jeonse prices (-0.13%) outpaced that of sales prices (-0.09%). This is a different pattern from the past, when sales prices fluctuated more sharply than jeonse prices.

The monthly rent market continues to rise. According to the Korea Real Estate Board, the nationwide comprehensive monthly rent price increased by 0.1% last month. This contrasts with the weakness in both sales and jeonse markets. This indicates that demand for switching to monthly rent is increasing due to the impact of interest rate hikes.

As the reverse jeonse crisis becomes visible, unusual scenes such as offering moving cost support or luxury bags as incentives are occurring. A homeowner in an apartment in Cheonan, Chungnam, made headlines by posting a notice seeking a jeonse tenant with the condition of giving a Chanel bag upon contract signing. The biggest problem in this market situation is gap investors who purchased homes with jeonse. It is pointed out that if jeonse prices fall below the contract price, these investors may not be able to return the deposit to tenants. Cha Sang-wook, CEO of Forcommas, said, "Contrary to experts' forecasts of a jeonse crisis in August, the second year after the implementation of the Lease Protection Act, a reverse jeonse is actually occurring," adding, "This trend is likely to continue for more than a year and may be more severe than in the past."

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