Unable to Find Jeonse, Renters Pushed to Monthly Rent... Seoul Apartment and Villa Price Indices Hit Record Highs [Real Estate AtoZ]

54% of New Lease Contracts This Year Are Monthly Rents
Balloon Effect Spreads to Villas

Monthly rents for apartments and villas (multi-unit and row houses) in Seoul have both reached their highest levels since records began. Experts point out that "as jeonse (lump-sum deposit lease) listings have dried up, renters searching for new homes are being pushed toward semi-jeonse and monthly rent contracts." With even monthly rents—which had been considered an alternative to jeonse—rising, the housing cost burden for those without homes is growing.

Real estate brokerage office in Jamsil, Seoul. The Asia Business Daily DB

According to statistics from the Korea Real Estate Board released on May 21, the monthly rent price index for Seoul apartments reached 101.82 last month, marking the highest level since the index was first compiled in June 2015. The index has set a new all-time high every month for 27 consecutive months since February 2024 (93.09).

The rise in apartment monthly rents is also spreading to the non-apartment market. Last month, the integrated monthly rent index for Seoul villas (multi-unit and row houses) also set a new record high at 101.23. With renters unable to find jeonse contracts shifting their focus from apartments to villas, and from jeonse to semi-jeonse or monthly rent, even villas—which were considered as alternate housing—are seeing monthly rents rise, reducing the available choices.

Although the housing cost burden has soared to an all-time high, the jeonse listings themselves have nearly disappeared, resulting in over half of new lease contracts being monthly rents. According to the Ministry of Land, Infrastructure, and Transport's actual transaction price disclosure system, out of 45,344 new Seoul apartment lease contracts (excluding renewals) between January 1 and May 20 this year, 54% (24,476 contracts) were monthly rent contracts. This marks an 8.6 percentage point increase from the same period a year ago (45.4%).

The concentration on monthly rent contracts is primarily due to the lack of available jeonse listings. In the second week of this month, the jeonse supply-demand index for Seoul apartments was 113.7, the highest since March 2021. When the supply-demand index is above the baseline of 100, it indicates that demand exceeds supply in the market. Field agents explain that as the right to renew lease contracts, introduced in 2020, enters its sixth year, there are more cases where tenants who have used their one-time renewal are being asked to sign new contracts at current market rates when their leases expire.

In addition, the shortage of jeonse properties and landlords' preference for monthly rent are combining to shift new listings on the market toward semi-jeonse and monthly rent. Since the ban on "ownership transfer conditional jeonse loans" on June 27 last year, gap investments—where buyers use tenants' jeonse deposits to pay the balance—have been blocked. This has narrowed the supply channel for new jeonse listings that used to be created through sales with tenants in place.

Actual transaction prices are also on the rise. The average jeonse deposit for Seoul apartments increased by 7.3% (42 million won) over the past year, from 576 million won to 618 million won. For monthly rent transactions, the average deposit was 209 million won and the average monthly rent was 1.17 million won, up 5.6% and 9.3%, respectively, from a year ago (deposit of 198 million won and monthly rent of 1.07 million won). Among monthly rent transactions, 56.3% involved deposits of at least 100 million won, and high-value semi-jeonse deals with deposits of at least 300 million won accounted for 25.9%.

Even the conversion rate applied when switching from jeonse to semi-jeonse or monthly rent (the jeonse-to-monthly rent conversion rate) is rising. According to KB Real Estate, the jeonse-to-monthly rent conversion rate in Seoul last month was 4.25%, maintaining a high level since reaching a seven-year, nine-month high of 4.26% in October last year. By region, the 14 districts of Gangbuk recorded 4.32%, while the 11 districts of Gangnam recorded 4.17%, indicating that tenants in Gangbuk, where mid- to low-priced housing is concentrated, bear a greater burden numerically.

When the jeonse-to-monthly rent conversion rate rises, tenants pay higher monthly rent for the same deposit amount when converting to a monthly rent contract. For example, for a house in Gangbuk with a jeonse deposit of 600 million won, if it is converted to a semi-jeonse contract with a deposit of 200 million won and monthly rent, the remaining 400 million won would be subject to a 4.32% rate, resulting in an annual rent of 17.28 million won, or 1.44 million won per month. If the contract is converted to a pure monthly rent without a deposit, the monthly rent would amount to 25.92 million won per year, or 2.16 million won per month.

Experts warn that instability in the jeonse and monthly rent markets could spill over into housing issues for young people. Lee Changmoo, a professor at Hanyang University, said, "As jeonse and monthly rent prices continue to rise, the housing insecurity of young people, who often have limited savings, is intensifying. For young people without homes and ordinary citizens, renting is the only option to live near their workplaces in the city center, but the rapid disappearance of such listings is the biggest problem."

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