[Real-life Finance] Jeonse Shortage Persists...Tenants Should Secure Renewal Rights and Apply for Phase 3 New Town Housing

Holding on to Your Current Home Matters More Than Finding a Better One

Phase 3 New Town Subscriptions Becoming More Attractive as New Supply Starts

Areas With Ample New Rentals Offer Better Options for Jeonse

Non-Apartment and Public

An office worker, Mr. A (39), who lives in an apartment in Gangbuk-gu, Seoul, is approaching the end of his jeonse (long-term rental) contract in two months. Two years ago, he moved into a 59-square-meter apartment with a deposit of 320 million won, but recently, new jeonse contracts for units of the same size in the same complex have been signed at 500 million won. To find a new jeonse home, he would need to prepare an additional 100 to 200 million won for the deposit. He is also considering whether to exercise his right to request contract renewal now, as he remains in the current apartment. The landlord has said, "If you agree to a small increase, we can renew the contract," but Mr. A is not sure whether it is wise to save his once-in-a-lifetime renewal right for later.

View of the villa district in downtown Seoul from Namsan, Seoul. Photo by Dongju Yoon

As the jeonse shortage continues, the calculations for tenants like Mr. A have become increasingly complicated. According to the Ministry of Land, Infrastructure and Transport’s actual transaction disclosure system, the proportion of renewal contracts for Seoul apartments’ jeonse and monthly rental agreements in the first quarter of this year was 46.9%. This is up 5.1 percentage points from 41.7% in the previous quarter. On a monthly basis, the rates have continued to rise: 45.4% in January, 47.8% in February, 47.7% in March, and 47.8% in April. Looking at jeonse contracts alone, the renewal contract rate in April exceeded half, reaching 53.77%.

With fewer jeonse listings available in Seoul, it has become more difficult to find a new jeonse home, and the deposit burden for new contracts has increased. The head of a real estate brokerage in Sanggye-dong, Nowon-gu, explained, "Nowon-gu has traditionally been an area where newlyweds and young office workers start off with jeonse or monthly rent, save up, and then move on to home ownership. These days, even though jeonse deposits have risen by tens of millions of won, there are still no properties available, and monthly rents have jumped by 500,000 won in the past year, making it harder for ordinary people to find a place to live."

According to the real estate big data platform Asil, as of the 12th, there were about 16,300 jeonse listings in Seoul, down more than 20% compared to three months ago. Monthly rental properties have also decreased by more than 20% during the same period. With both jeonse and monthly rental options shrinking, tenants are now prioritizing "holding on to their current home" over "moving to a better one."

"You May Not Be Able to Use It If You Save It"... Prioritize Exercising Renewal Rights

While renewal contracts are increasing, the proportion of tenants actually exercising their right to request contract renewal has declined. In the first quarter of this year, only 43.3% of renewal contracts involved the use of this right, down from 51.83% in the third quarter and 47.1% in the fourth quarter of last year. Exercising the renewal right caps the rent increase at 5% and allows tenants to stay for another two years, but it can only be used once. As a result, some tenants are opting to renegotiate with the landlord—even accepting a rent increase above 5%—and save the renewal right for later. Factoring in moving expenses, brokerage fees, jeonse loan burdens, children’s schooling, and commuting conditions, many are concluding that it is better to stay in their current home rather than look for a new jeonse property.

However, experts caution that saving the renewal right at all costs can be risky. The renewal right cannot be exercised at any time at the tenant’s discretion. If the landlord requests the end of the contract due to plans for personal occupancy, it becomes difficult for the tenant to exercise the renewal right. In particular, non-resident single homeowners can meet the two-year residency requirement for capital gains tax exemption by living in the property themselves, meaning the landlord’s change of intent after two years remains an unpredictable factor. Ham Youngjin, head of Real Estate Research Lab at Woori Bank, said, "There's no way to know what choice the landlord will make in two years, and it's not easy to secure such guarantees through special contract clauses either. In a severe jeonse shortage, it is better to exercise your renewal right sooner rather than save it until the end, to secure your housing stability now."

Pay Attention to 3rd-Phase New Town Subscriptions... For New Jeonse Homes, Start with Areas with Incoming Supply

Tenants facing the end of their jeonse contract should first decide whether to remain in the rental market or pivot toward homeownership. If you plan to continue living in your current home and still have your renewal right available, it is worth actively considering exercising it. If the deposit for new jeonse contracts is significantly higher than your current deposit, or if it is difficult to find alternative listings in the same living area, simply using your renewal right can help you avoid a sudden jump in housing costs for at least two years.

If you do not intend to remain a renter in the long term, you should also develop a subscription (pre-sale) strategy. This year, large-scale public land supplies are being rolled out in the third-phase new towns, such as Changneung in Goyang and Wangsuk in Namyangju, as well as Dongtan in Hwaseong, Nakseng in Seongnam, and Bokjeong in Seongnam. With the price ceiling system in place, you can secure quality locations at around 19 to 20 million won per 3.3 square meters (one pyeong). If you have a subscription savings account and qualify as a newlywed, first-time homebuyer, or household with a newborn, you should consider these opportunities while weathering the jeonse shortage.

Tenants needing to find a new jeonse home should start by looking in areas with incoming supply. If it is difficult to find a jeonse unit in your desired complex within Seoul, consider new developments in the outskirts of the Seoul metropolitan area or regions with a concentration of new properties. In areas with ongoing move-ins, landlords are often more flexible with deposit and monthly rent terms to attract tenants, so you may have more options to choose from.

Non-Apartment and Public Rentals Also Viable Alternatives

If there are no solutions in the apartment jeonse market, consider adding non-apartment options or public rentals to your list. However, for villas, officetels, and urban-style houses, you must first check whether they are eligible for jeonse deposit return guarantees and whether there are any senior claims. It is safer to avoid listings with deposits that are excessively high compared to market rates or where the landlord has heavy loans. Public rental and purchase-rental properties supplied by Korea Land & Housing Corporation (LH) and Seoul Housing & Communities Corporation (SH) are also announced from time to time, so it is wise to check these options before your jeonse contract expires. Accepting part of your housing cost as monthly rent can also be a practical alternative. When jeonse loan interest rates are high, it may be more cost-effective overall to pay some monthly rent rather than raise your deposit and take on more loans. In this case, you should compare not just the monthly rent, but also the increased deposit amount, jeonse loan interest, maintenance fees, moving costs, and brokerage fees together.

Mr. Ham advised, "It is unlikely that jeonse and monthly rental listings will increase rapidly within the next year or two. If you do not intend to remain a renter permanently, it is essential to actively consider applying for the third-phase new towns and public land subscriptions that are ramping up this year." He added, "Until you are selected for a subscription, you should expand your options to include rentals in areas with incoming supply, non-apartment options, or public rentals to diversify your housing costs."

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