[Apartment] "Money that didn't exist appears after 2 years"...Debt aimed at capital gains may end up as debt (Appraiser Park Eunjeong Part 3)

Unrealistic Capital Gains, Please Let Go of Your Expectations. (Appraiser Park Eunjeong Part 3)

Highlights

Fundamentally, to solve the reverse jeonse problem, you need money. Will money appear in two years? For those who currently have no money, the basic principle to solve this problem is to dispose of the assets they have now to resolve the debt issue. However, because the problem is serious right now, the government is proactively easing the DSR, meaning they are lending more money without checking the borrower's ability to repay, thereby extending this situation.

Q. How serious is the reverse jeonse crisis?

Shin Ji-eun: Let's talk about jeonse in part 3. Recently, the term 'reverse jeonse crisis' has been appearing a lot. Some experts said it would be resolved after a cycle passes. What is your view?

Park Eun-jung: The reason the jeonse problem is so serious now is because the supply and demand sides are intertwined. The term 'jeonse crisis' was used just a few years ago. That was when the three lease laws were introduced, and during the period when landlords couldn't raise rents, they tried to raise the jeonse prices in advance. Frankly, that was somewhat illogical. At that time, a friend of mine was so upset about the three lease laws that they bought a house. But in fact, after the introduction of the three lease laws, about 78%, meaning 8 out of 10 people, just renewed their contracts within about 5% increase in the existing house, and the remaining 20% were the ones affected. Looking at the transactions that occurred then, many people invested with high jeonse prices, which was a social phenomenon.

Jeonse was a form of investment where the tenant lent a large sum of money to the landlord, leveraging it. But reverse jeonse occurs when the borrower has to repay part of the principal at once. For example, if I borrowed 1 billion KRW from a tenant as jeonse, but now the market price is only about 800 million KRW, I have to repay 200 million KRW. The reverse jeonse crisis happens because the borrower cannot repay the money?they have no money. The reverse jeonse came because of a lack of money. Although it has been said that there was no supply, compared to the average year, during the five years of the Moon Jae-in administration, about 15,000 more apartments were supplied annually in Seoul. A very large number of apartments were sold. Also, areas where redevelopment and reconstruction were previously halted due to lack of profitability resumed and completed their projects successfully. So, there was a lot of supply in the market. But who bought all these? Many bought with debt. If you had just the deposit, you could get an apartment, and the middle payments were interest-free or with minimal interest, and you could cover the final payment by renting out the apartment as jeonse.

Shin Ji-eun: They bought without money, then.

Park Eun-jung: Exactly. They entered the market expecting capital gains. The overheated market has now returned to reality. After 2 or 3 years, it's time to move in. To pay the final payment, money is needed, but people don't have money. They tried to cover it by renting out as jeonse. Therefore, there is still a large supply of jeonse. But many people who rent jeonse now are those who bought houses during that period, so jeonse demand has decreased. Since they have more houses, jeonse demand has shrunk, and those renting jeonse used to use their own capital without much debt.

Shin Ji-eun: They used their own money to rent jeonse.

Park Eun-jung: They rented jeonse within their means. But as jeonse loans became more active, they also bought with debt. However, as interest rates rose and it became difficult to bear, the demand to support that amount disappeared. So, jeonse demand decreased and supply increased, naturally causing jeonse prices to fall. That's why reverse jeonse occurred, but the borrowers cannot repay the money.

Shin Ji-eun: So, the reverse jeonse issue is not new but recurring. Given the current situation of no money and abundant supply, is this solvable?

Park Eun-jung: That's why the government said they would proactively respond by lending money without applying DSR.

Shin Ji-eun: So the government decided to lend money.

Park Eun-jung: Yes. Because the borrowers cannot repay. But individuals won't lend at that price, so banks are asked to lend the remaining difference. Fundamentally, to solve this problem, you need money. Will this person have money in two years?

Shin Ji-eun: No, they won't have money even after two years.

Park Eun-jung: It's just extending the time. Ultimately, to solve this problem, the basic principle is to dispose of the assets that have appreciated to repay the debt. That's capitalism. When you have debts you cannot bear and the repayment time comes, you should first try to repay through self-help measures. If not possible, policy measures should be secondary. But now, because the problem is so serious, the government is proactively easing DSR, lending more money without checking repayment ability, thus extending the situation.

Even if loans are rolled over like this, unless the structure allows continuous refinancing through jeonse, the borrower will have to repay eventually, leading to forced sales or auctions, which are increasingly appearing now.

Q. Is abolishing jeonse feasible?

Shin Ji-eun: It's not easy, and so the idea of abolishing jeonse comes up. Is that possible?

Park Eun-jung: Jeonse is not a mandatory system; it has existed because both parties' needs matched. For tenants, jeonse is a stage to accumulate capital before buying a home. Parents with children starting anew use jeonse as a means of gifting. It has the advantage of being cheaper than paying monthly rent. Landlords see jeonse as a way to maximize leverage, preferring capital gains over fixed rental income. So, jeonse formed because both sides' needs matched. Debt related to jeonse is not managed under an integrated system like other loans. Where and how much someone borrowed is checked for credit, but jeonse is outside that scope. However, since jeonse is a form of private financing, it should be managed comprehensively within that system.

Q. Desirable real estate investment methods

Shin Ji-eun: Lastly, viewers may own homes, be non-homeowners, or be interested in real estate investment. Besides subscription (pre-sale), what are proper ways to invest in real estate? Please advise our viewers.

Park Eun-jung: First, you don't have to limit real estate to apartments. There are various real estate products. Unlike stocks, real estate has the advantage of being tangible. It has spatial meaning and can generate income through rental income without active work.

You shouldn't view the market just with the expectation that 'someone will buy it at a higher price.' Instead, consider the actual income the property can generate, and invest in properties that can continuously earn money like a cash cow at a reasonable price. I think this is a healthier approach.

Also, a house can be an investment, but more importantly, it is a product based on personal utility and residence. Considering market conditions over time, buying cheaply is better.

Shin Ji-eun: Buying cheaply is better.

Park Eun-jung: Rather than buying expecting to sell at a higher price later, focus on buying your home cheaply when the macro environment is unfavorable. I hope you observe the market with this focus. When the market overheated, it was unfortunate that people in their 20s and 30s experienced asset inequality and invested with limited goals, focusing only on how much they must earn. From my experience, that period is the most important time to leap forward and also a time with some leeway. So, investing in yourself and enhancing your value is better.

Shin Ji-eun: That's very helpful advice. Today, we discussed the overall real estate market with appraiser Park Eun-jung. Thank you for joining us.

Park Eun-jung: Thank you.

Shin Ji-eun: Today, we had our first female guest, appraiser Park Eun-jung, to talk about real estate. If you found this interesting and useful, please like and subscribe. This has been economic creator Shin Ji-eun. Thank you.

Appraiser Park Eun-jung

- Graduated from Yonsei University, Department of Urban Engineering; Master's in Real Estate from Konkuk University
- Worked at Korea Appraisal Board from 2003 to 2017
- Certifications: Certified Appraiser, MAI (Member of Appraisal Institute, USA), Licensed Real Estate Agent, Specialist in Maintenance Project Management

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