"Including Jeonse Loan in DSR... Need to Expand Corporate Rental Business"

KB Financial, Publishes Report on 'Structural Risk Assessment and Policy Recommendations for the Jeonse System'

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Amid the recent rise of jeonse fraud as a social issue, there have been calls to include jeonse loan amounts in the calculation of the Debt Service Ratio (DSR) and to restrict jeonse loans for homes with high sales-to-jeonse price ratios. Additionally, advice has been given that expanding 'corporate rental businesses' is necessary to stabilize transactions.

On the 18th, KB Financial Group Management Research Institute stated in its report titled "Structural Risk Assessment and Policy Suggestions for the Jeonse System" that "While the government is preparing measures to prevent jeonse fraud and support victims at a pan-government level, it is necessary to identify structural problems and develop fundamental improvement plans to build a stable rental system."

According to the report, the jeonse system has served as a means of housing purchase using private financing, but it holds a 'structural problem' where investment activities during a housing market boom expand into tenants facing jeonse deposit returns and losses during a housing market downturn. Recently, with the rapid rise in jeonse prices leading to an increase in zero-capital gap investments, the simultaneous sharp decline in both sales and jeonse prices has expanded the 'jeonse risk.'

The report argues that to prevent liquidity increases from jeonse loans from distorting housing prices, jeonse loans should be included in the DSR calculation, and jeonse loans should be restricted for homes where the sales-to-jeonse price ratio exceeds 70%.

However, it advises that if landlords apply for loans specifically to return jeonse deposits, the mortgage loan regulation limits (for multi-homeowners, LTV 30% in regulated areas and LTV 60% in non-regulated areas) should be temporarily raised to LTV 70%. Especially for loan applications under 150 million KRW, DSR application should be exempted to support tenants' stable move-out.

The report also views the expansion of 'corporate rental businesses,' where financial institutions purchase homes during sharp price drops and operate them as public rental housing, as significantly contributing to a soft landing of the housing market and transaction stability in the real estate rental market. It further suggests the need for a corporate brokerage platform that directly mediates and manages rental housing, responsible for preserving jeonse deposits and contract termination in case of defects, and proposes the prompt introduction of mandatory rental business registration for multi-homeowners.

In the long term, the report advises mandating landlords to subscribe to jeonse deposit insurance. Additionally, it proposes obligating real estate agencies to verify landlord-related information and explain sales-to-jeonse price ratios, applying tenant move-in registration effects from the day of registration, and improving the move-in system so that financial institutions can check fixed-date information when executing loans.

Dr. Kang Min-seok of KB Management Research Institute said, "The jeonse system, a unique rental form in Korea, has so far played a crucial role as a housing ladder for non-homeowning citizens to own their homes. However, due to excessive gap investments recently causing jeonse fraud and 'empty jeonse' problems, institutional improvements have become urgently necessary. In the short term, support for victims of jeonse fraud should be strengthened, while in the long term, active consideration should be given to system improvements to fundamentally resolve issues in the jeonse market."

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