"Reverse Jeonse Crisis Will Disappear by July Next Year" [Apartment]

Shin Ji-eun: We will now begin Part 3 of Economic Hotspot with Professor Park Hap-soo. In this part, we will discuss the jeonse issue. Recently, there have been serious concerns about issues such as "empty-can jeonse" and reverse jeonse problems. There are even voices calling for the abolition of the jeonse system. Many say the reverse jeonse crisis is severe. Could you please assess how serious this issue is and whether it could affect the overall real estate market in the second half of the year?

Q How serious is the current reverse jeonse problem?

Park Hap-soo: Reverse jeonse refers to a situation where the jeonse deposit at the time you have to move out is significantly lower than the amount you initially contracted for. The core of the reverse jeonse problem is that tenants face difficulties in getting their deposit refunded from landlords, making it hard for them to move. Now that jeonse deposit return loans are being implemented as an exception to the DSR (Debt Service Ratio), if the refund process goes smoothly, we can expect the reverse jeonse problem to ease somewhat.

Looking into why this problem arose, when housing prices surged, the housing price line and the jeonse price line moved together for about three years. That is, as sales prices rose, jeonse prices followed. Specifically, housing prices increased through 2020, 2021, and the first half of 2022.

2019 can be considered the first low point, and prices started to rise gradually from the second half of that year, continuing through 2020, 2021, and the first half of 2022. Therefore, the two years from July 2020 to July 2022, when jeonse deposits were contracted at high levels, are problematic. Based on 2023, those who signed contracts in 2021 will reach two years in July 2023. After two years, tenants can request contract renewal with only a 5% increase and extend for another two years within that 5% range. However, since jeonse prices have dropped compared to 2021, tenants want their deposits back to move elsewhere.

So, if the jeonse deposit return loans proceed smoothly this time, the problem is likely to ease to some extent. By July 2024, when the two-year mark from July 2022 is reached, the reverse jeonse issue is expected to be largely resolved. Most tenants who contracted at high prices during the housing price rise will have moved out, so the problem will almost disappear. Since this is a transitional issue expected to be resolved by next July at the latest, there is no need for excessive concern.

Also, I mentioned it will be settled by the first half of next year, but the issue next year is that apartment move-in volumes in Seoul will sharply decrease. From the supply side, there is a risk that jeonse prices may rise next year. If we get through the second half of this year reasonably well, there should be no major problems.

Q Is it possible to abolish jeonse?

Shin Ji-eun: Recently, there have been radical claims to abolish jeonse due to many arising problems. Is it possible to eliminate jeonse? Do you think it is necessary to do so?

Park Hap-soo: Jeonse cannot be arbitrarily abolished or decided to be removed. The jeonse system has long been intertwined with various interests in the market, so suddenly cutting it off and switching entirely to monthly rent is impossible.

Living under jeonse is the least burdensome way in terms of housing costs. For example, if a 1 billion KRW house has a jeonse deposit of 60%, meaning you can live there by paying 600 million KRW, you are effectively utilizing the full value of the house by paying only 600 million KRW instead of the full 1 billion KRW. Because it costs the least in housing expenses, there is no reason to abolish jeonse. Moreover, the biggest hope of monthly renters is, do you know what? "I want to live under jeonse."

There is no reason to abolish jeonse, and it will not disappear. However, when jeonse prices rise slightly, the number of semi-jeonse (ban-jeonse) forms may increase. For instance, if jeonse was 500 million KRW but suddenly the landlord asks for 700 million KRW, tenants cannot suddenly prepare 200 million KRW without loans. So they might pay monthly rent for that 200 million KRW portion, creating a semi-jeonse form. But as jeonse prices stabilize, the semi-jeonse portion has disappeared. Therefore, 100% jeonse is welcomed from the tenant's perspective.

Q Improvements to the current jeonse system

Shin Ji-eun: Professor, are there any points in our country's jeonse system that you think should be improved? Or is it perfect?

Park Hap-soo: The jeonse system is based on a certain ratio of the house price, called the jeonse rate. The jeonse rate fluctuates accordingly. Generally, when the jeonse rate exceeds 70% (meaning you only need to add 30% to buy the house), it tends to push up housing prices. Currently, the rate is below 50-60%, but if it rises close to 70%, there will likely be considerable demand for homeownership. It is important for tenants to watch this jeonse rate trend carefully and use it strategically for homeownership.

Gap investment, where multi-homeowners buy houses with jeonse, is not something to encourage, but since it is a form of investment, it is not absolutely negative. Multi-homeowners renting out jeonse allow tenants to use houses at affordable prices and act as private housing suppliers.

However, to prevent excessive gap investment, the previous government imposed heavy acquisition taxes on multi-homeowners. The current government plans to ease these acquisition taxes, and a local tax law amendment bill has been submitted to the National Assembly. It was submitted in December last year but has not yet passed.

Since December 21 last year, the government announced it would apply this retroactively and refund acquisition taxes if the law passes. But I believe this local tax law amendment should be postponed. Easing acquisition taxes for multi-homeowners who buy houses with jeonse could raise concerns about housing price increases. Therefore, acquisition tax relief for multi-homeowners should be postponed to allow the homeless to buy homes first. Increasing tenants' homeownership rates contributes to overall housing market stability. While multi-homeowners play a role as private rental housing suppliers, the priority should be homeownership for the homeless before multi-homeowners buy more houses. Thus, acquisition tax surcharges should be maintained for now.

The acquisition tax surcharge currently calculates housing numbers mainly in regulated areas, but except for the Gangnam 3 districts and Yongsan district, most regulated areas have been lifted. So this criterion is almost meaningless. I continuously argue that the criteria should be reestablished by administrative units such as the metropolitan area, provincial metropolitan cities, and large provincial cities, and operated as a permanent taxation system to partially block multi-homeowners' entry through acquisition tax improvements.

Shin Ji-eun: Today, we discussed the jeonse system with Professor Park Hap-soo, and you shared many practical insights. Among the viewers watching this video, there must be people dreaming of owning a home. Could you please leave a final message for them?

Park Hap-soo: Homeownership is a task we naturally have to do. Many ask when they should buy a house. The answer is: when you are ready. Once you have the ability to repay loans, there is generally no problem. This does not mean you should chase rising prices. At this stage, it is fine to focus on subscription-based housing lotteries. Also, if there are cheap urgent sales in your area of interest, considering future value including reconstruction is reasonable. Since most housing prices have not fully risen yet, some areas have relatively less increase. If you search diligently, you may find good urgent sales not even listed online. I recommend actively searching and making efforts to own a home.

Shin Ji-eun: Let's all keep dreaming of homeownership and becoming wealthy, taking today's advice to heart. We thank Professor Park Hap-soo for joining us on Apartment today. Thank you.

Park Hap-soo: Thank you.

Shin Ji-eun: We will conclude Economic Hotspot here. If you enjoyed the video, please like and subscribe. This has been economic creator Shin Ji-eun. Thank you.

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