'Dongtan Jeonse Damage' May Strike Again... Gyeonggi-do Officetel Price Drop Rate Twice That of Seoul

Along with Daegu, the largest nationwide drop in sale prices
Price bubble from gap investment deflates, raising concerns over empty lease deposits
If auctioned, refunding the deposit may become difficult

Amid large-scale jeonse (long-term lease) damages occurring in the Dongtan New Town area, it has been revealed that the decline rate of officetel sale prices in Gyeonggi Province in the first quarter reached the highest level nationwide, raising concerns about further damages. As prices that had surged due to ‘gap investment’ aiming for capital gains during the real estate boom collapse, the risk of ‘empty jeonse’?where tenants cannot get their deposit back?is being raised.

Officetel [Image source=Pixabay]

According to the Korea Real Estate Board on the 20th, the sale price of officetels in Gyeonggi Province fell by 1.54% compared to the previous quarter. This was the second largest decline nationwide after Daegu (-1.58%). It is twice the rate of Seoul (-0.81%). The national average change rate was -1.19%. The sale price of officetels in Gyeonggi Province has been continuously declining since it turned negative in the third quarter of last year (-0.17%), increasing the decline in the fourth quarter (-0.75%) and continuing thereafter.

A Korea Real Estate Board official explained, "The sale price of officetels in Gyeonggi Province fell compared to the previous quarter due to demand contraction caused by increased loan burdens and a prevailing wait-and-see attitude amid uncertain prospects."

Officetels had surged in price during the previous real estate boom as an alternative to apartments. At that time, rising jeonse prices due to the new lease law coincided with demand focused on gap investment?buying with jeonse deposits to gain capital gains. However, since the second half of last year, demand has sharply contracted due to rapid interest rate hikes and the application of the Debt Service Ratio (DSR). Moreover, recent government deregulation efforts to ensure a soft landing in the real estate market have focused on apartments, causing officetel prices to plunge.

In particular, Gyeonggi Province shows a steeper decline recently because its price bubble is larger than Seoul’s, which is based on stable demand. Baek Saerom, a senior researcher at Real Estate R114, explained, "Compared to Seoul, where stable demand supports the market, Gyeonggi officetels have a higher sensitivity to real estate market shocks, resulting in a larger price decline."

Hwang Hansol, a research analyst at Economy Manlab, said, "Officetels mainly attract investment demand, but in the current high-interest environment, their investment value is lower compared to Seoul apartments, Seoul officetels, or Gyeonggi apartments. The officetel market can stabilize only after the apartment market regains stability, so the downturn may be prolonged."

The problem lies in the risk of empty jeonse. Owners who purchased officetels with loans and jeonse deposits face both interest burdens and falling sale prices during this high-interest period. If this situation continues, officetels may be auctioned off. When the sum of mortgage liens and jeonse deposits exceeds the sale price and the property goes to auction, tenants may suffer financial losses.

The recent controversy over jeonse fraud damages in the Dongtan New Town area is a case in point. A couple owning about 250 officetels in Dongtan, Byeongjeom, and Suwon reportedly demanded tenants transfer ownership instead of returning jeonse deposits due to increased tax burdens from gap investment. However, since officetel prices have fallen to the level of jeonse deposits, victims argue that losses are inevitable even if ownership is transferred. With the recent fall in jeonse prices causing reverse jeonse difficulties, tenants’ housing instability is worsening due to delayed deposit returns, even if large-scale jeonse damages do not occur.

To prevent such property damages, tenants should avoid properties where the sum of jeonse deposits and owner loans exceeds 85% of the sale price. After signing a jeonse contract, tenants must immediately register their residence and obtain a certified date. It is also advisable to subscribe to jeonse deposit return guarantee insurance. This insurance, provided by the Housing and Urban Guarantee Corporation (HUG), guarantees the return of jeonse deposits at the end of the lease. If the landlord fails to return the deposit without just cause or due to auction, the corporation compensates the tenant on behalf of the landlord.

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