Jeonse Loan Interest Rates Drop Below Monthly Rent Conversion Rate...Will Jeonse Demand Gain Momentum?

5 Major Banks' Jeonse Loan Interest Rates Fall Below 3%
Loan Interest Cheaper Than Monthly Rent
Tenants Returning to Jeonse Market

The proportion of jeonse (long-term lease) in Seoul's jeonse and monthly rent market has exceeded 60% for the first time in seven months. Recently, as jeonse loan interest rates have dropped to the 3% range and started to fall below the jeonse-to-monthly rent conversion rate, tenants who had been opting for monthly rent due to high interest burdens are expected to continue returning to the jeonse market for the time being.

According to the Seoul Real Estate Information Plaza on the 19th, among 19,585 apartment lease transactions in Seoul last month, jeonse transactions accounted for 12,185, making up 62.2%. This is the first time in seven months since August last year (60.4%) that the proportion of jeonse transactions in Seoul apartments has exceeded 60%. The share of jeonse transactions in Seoul apartments had fallen to 48% in December last year. It then rose from 55.3% in January to 56.2% in February, before surpassing 60% last month. Jeonse listings are also decreasing. According to statistics from the real estate big data company Apartment Real Transaction Price (Asil), as of the previous day, the number of jeonse listings for Seoul apartments was 41,829, significantly down from 46,843 a month earlier.

This appears to be due to the decline in jeonse loan interest rates since the end of last year, which has led lease demand to return to the jeonse market. Currently, the jeonse loan interest rates (as of the 17th) from the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) have both variable and fixed rates starting in the 3% range. Variable rates range from 3.75% to 5.96%, and fixed rates from 3.40% to 5.86%. Compared to the end of last year when the upper limit exceeded 7%, this is a significant drop.

In particular, as jeonse loan interest rates have started to fall below the jeonse-to-monthly rent conversion rate, there are expectations that jeonse demand will further revive. This is because when the jeonse loan interest rate is lower than the conversion rate?which converts the jeonse deposit into a one-year equivalent monthly rent?the monthly rent becomes more expensive than the loan interest. According to KB Kookmin Bank’s monthly time series, the jeonse-to-monthly rent conversion rate for Seoul apartments was 4.08% as of last month. Additionally, the Korea Real Estate Board announced on the 17th that the nationwide housing jeonse-to-monthly rent conversion rate in February this year was 6.0%, and 5.0% in Seoul. Considering that the lowest jeonse loan interest rates at commercial banks are in the 3% range, the cost of jeonse loans becomes lower than monthly rent. The nationwide housing jeonse-to-monthly rent conversion rate reaching 6% is the first time in 3 years and 3 months since November 2019 (6.0%). Seoul’s rate also rose to 5% for the first time in 2 years and 7 months since July 2020 (5.0%).

However, many in the market believe that while the phenomenon of 'jeonse turning into monthly rent' will slow down, it is premature to predict a full recovery of the jeonse market. This is because a large volume of apartment move-ins, mainly in the Gangnam area of Seoul, is expected to occur all at once by next year, which could lead to further declines in jeonse prices. The scheduled move-in volume this year for the three Gangnam districts?Seocho, Gangnam, Songpa?and Gangdong district is 12,404 households, more than three times last year’s 3,592 households.

Another factor increasing the possibility of further jeonse price declines is that the supply of jeonse listings in the market still exceeds demand. According to the Korea Real Estate Board’s jeonse supply-demand index as of the second week of April, the index was 78.8, well below the baseline of 100. When this index falls below 100, it indicates a market dominated by suppliers?those offering jeonse?outnumbering demanders seeking jeonse.

Ye Kyung-hee, senior researcher at Real Estate R114, said, "Demand that had shifted toward monthly rent due to high interest rates is partially returning to jeonse as jeonse loan interest rates decline. However, since there are areas in Seoul with large-scale scheduled move-ins this year and the jeonse market still has more supply than demand, it seems that more time will be needed for the jeonse market to recover."

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