Will the Jeonse Market Shake Again... It Depends on the US Interest Rates

Seoul Jeonse Transaction Volume Recovery
Impact of Rapid Jeonse Sales and Jeonse Price Decline
Uncertain Whether Jeonse Preference Will Continue

The scale of interest rate hikes in the United States has emerged as a variable in the domestic Jeonse market. As interest rate hikes and an increase in move-in volumes coincide, Jeonse prices for major apartment complexes in Seoul have plummeted, rapidly spreading the reverse Jeonse crisis, which is acting as a factor simultaneously lowering both Jeonse and sale prices. Starting this month, a surge in move-ins is expected, centered on Gangnam redevelopment complexes, and if the Bank of Korea raises rates in response to additional U.S. interest rate hikes, the Jeonse market could once again experience turbulence.

[Image source=Yonhap News]

According to the Korea Real Estate Board on the 14th, as of the 6th, Seoul Jeonse prices fell by 0.58% compared to the previous week. The decline narrowed from the previous week's -0.70%, slowing the downward trend for seven consecutive weeks. The volume of Jeonse transactions for apartments in Seoul also showed signs of recovery. According to the Seoul Real Estate Information Plaza, the volume of Jeonse transactions for Seoul apartments was 11,272 cases, an increase of 1,235 cases compared to the previous month (10,037 cases). This is the first time in four months since October last year (10,722 cases) that Jeonse transaction volume exceeded 10,000 cases.

Recently, due to increased supply and the burden of loan interest caused by interest rate hikes, Jeonse prices have fallen, strengthening the preference for monthly rent. As landlords lowered Jeonse deposits to attract tenants, Jeonse demand appears to have increased again. Last month, the Bank of Korea halted its interest rate hike train and kept the base rate at 3.50% per annum, which lowered Jeonse loan interest rates to the 4% range recently, also contributing to the increase in Jeonse demand.

On the other hand, monthly rents continue to rise, increasing the burden of monthly rent day by day. According to Real Estate R114, the average monthly rent for apartments nationwide was 620,000 KRW in December last year and January this year, up 24.9% from the average monthly rent of 520,000 KRW two years ago. During the same period, the average monthly rent for apartments in Seoul also rose 8.1%, from 850,000 KRW to 920,000 KRW.

Yoon Ji-hae, head of the research team at Real Estate R114, said, "Due to the high interest rates, demand had shifted to monthly rent, but as uncertainty about interest rates somewhat improved, demand moved back to Jeonse. The increase in Jeonse urgent sale listings, which caused prices to drop significantly, also helped recover transaction volumes."

However, whether the preference for Jeonse will continue remains uncertain due to the possibility of additional U.S. interest rate hikes. The rapid interest rate hikes have been pointed out as a cause of the Silicon Valley Bank (SVB) collapse, raising the possibility that the U.S. Federal Reserve (Fed) might reduce the scale of rate hikes more than expected. However, Fed Chair Jerome Powell has made hawkish remarks suggesting further rate hikes, making it difficult to predict the scale at this point. If the U.S. proceeds with a big step (a 0.5 percentage point increase in the base rate), it seems unlikely that the Bank of Korea will maintain a freeze. Considering that loan interest rates may also change depending on whether and how much the U.S. raises rates, there is an interpretation that tenants feeling the burden of financing might choose monthly rent over Jeonse again.

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