"Block Kangtong Jeonse": Government Reluctant to National Assembly's Demand, Citing Increased Instability in Rental Market

Land Committee: "Jeonse Deposit Return Guarantee Eligibility to Be Set at 70% Ratio"
Eligibility Requirements Significantly Tightened from Current 90% Level
Guarantee Corporation: "Gradual Reduction Plan Under Review"

The government is showing reluctance toward the National Assembly's demand to tighten the eligibility requirements for jeonse deposit return guarantee products. During a recent review of the supplementary budget, the Land, Infrastructure, and Transport Committee of the National Assembly attached an opinion to its report, stating that "the government should consider lowering the eligibility requirement for jeonse deposit return guarantees to a jeonse-to-price ratio of 70% and implementing it within this year." However, the Ministry of Land, Infrastructure and Transport is not making an easy decision, citing potential negative side effects on the jeonse market.

According to the Ministry of Land, Infrastructure and Transport and other sources on April 16, the National Assembly's Land Committee discussed the eligibility criteria for jeonse deposit return guarantee products during this year's supplementary budget review, as the budget included the provision of minimum compensation to victims of jeonse fraud. The jeonse deposit return guarantee is a product that ensures the return of the deposit that the landlord must pay back to the tenant at the end of the jeonse contract.

Previously, it was possible to enroll in the guarantee with a jeonse-to-price ratio of up to 100%, but due to issues such as jeonse fraud, the ratio was lowered to 90% in 2023. The National Assembly is now repeatedly demanding that this be further reduced to 70%. The purpose is to prevent so-called "kangtong jeonse" (high-deposit, low-equity jeonse contracts) or zero-capital gap investments, as well as jeonse fraud resulting from these practices, where the tenant's deposit accounts for a large share of the property's value.

The Ministry of Land, Infrastructure and Transport and the Korea Housing & Urban Guarantee Corporation, which handles guarantee products, agree with the intent but are hesitant to make a decision, given that the change could significantly impact the rental market. Their main concern is that lowering the jeonse-to-price ratio could make it more difficult for landlords to return deposits to tenants.

An official from the Ministry of Land, Infrastructure and Transport stated, "We have established a general direction regarding tightening the eligibility requirements," but added, "From the landlord's perspective, there is the issue of having to receive a jeonse deposit from the next tenant to return it to the current one. If the ratio is suddenly lowered, landlords may not be able to find new tenants or may have to sign contracts at lower amounts, which could lead to situations where they cannot return the deposit." Although the policy direction is clear, the ministry has not specified the exact amount or timing of the reduction, as it believes this could destabilize the rental market, including both jeonse and monthly rental arrangements.

If the eligibility criteria for guarantee insurance are tightened by lowering the jeonse-to-price ratio, the impact is expected to be greater in the regions outside the Seoul metropolitan area. According to regional jeonse-to-price ratio statistics compiled by the Korea Real Estate Board, the ratio for apartments and villas in Seoul has remained in the 50% range (over the past year), as high property prices keep the relative value of jeonse deposits lower. However, with the exception of areas like Sejong or Daegu, the jeonse-to-price ratio exceeds 70% in most metropolitan municipalities nationwide. In Incheon, the ratio for villas and multiplex housing surpasses 80%.

A villa-dense area in Seoul. Photo by Yonhap News Agency

The accelerating conversion of jeonse to monthly rentals in the rental market is also making policymakers hesitant. As the number of jeonse units—typically associated with lower housing costs—declines, and as more properties become ineligible for deposit return guarantees, the shift to monthly rentals is likely to accelerate further. From the tenant's perspective, this could be seen as undermining housing stability.

An official from the Korea Housing & Urban Guarantee Corporation said, "We are considering various approaches, such as gradually lowering the jeonse-to-price ratio, to minimize the impact on the rental market." The official added, "'Monthly rentalization' is the result of multiple factors, including avoidance of jeonse due to fraud and landlords' preference for monthly rents. We expect that gradually lowering the jeonse-to-price ratio will reduce the number of contracts where jeonse deposits are excessively high compared to property prices."

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