[Oh Se-hoon Administration Real Estate Policy] <3> Revival of 'Lotto Jeonse'... Expectations for Long-term Jeonse Housing

by Kim Dongpyo

Published 14 Apr.2021 11:01(KST)

Updated 15 Jan.2025 13:20(KST)

On the 9th, a view of the Hangang riverside apartments, including Jamsil Jugong Complex 5 in Songpa-gu, as seen from Seoul Sky, the observation deck of Lotte World Tower in Songpa-gu, Seoul

Seoul Mayor Oh Se-hoon is advocating for deregulation and an expanded role for the private sector to achieve "speedy housing supply," but he is not excluding the public sector's role either. A representative example is the "long-term jeonse housing (SHIFT)" that he introduced during his previous tenure but was effectively phased out during Mayor Park Won-soon's administration. Mayor Oh plans to upgrade the long-term jeonse housing to swiftly address the housing supply shortage in the Seoul metropolitan area.

Mayor Oh's plan is to upgrade the long-term jeonse housing into "Sangsaeng Housing," a public housing model that leases private land, and supply 70,000 units within five years. He emphasized, "(Sangsaeng Housing) is the most realistic pledge to quickly supply housing without requiring a large lump sum of money."

Long-term jeonse housing is a type of public rental housing where the jeonse deposit is 80% or less of the surrounding market price, and residents can live there for up to 20 years. The rental targets include housing built by the Seoul Housing and Communities Corporation (SH) on public land (construction type) and apartments purchased by the Seoul Metropolitan Government through reconstruction or redevelopment (rental type). Applicants must be members of a household without homeownership residing in Seoul as of the announcement date and must meet income, real estate, and automobile criteria based on the application area.

When introduced, long-term jeonse housing was noted as an innovative residential model. By granting floor area ratio incentives to reconstruction complexes and purchasing some of the increased units, long-term jeonse housing was supplied even in major Gangnam reconstruction complexes such as Banpo Xi and Raemian Prestige.

Long-term jeonse housing was nicknamed "lottery jeonse" because it is not an officetel or villa but an apartment with good residential quality and affordable prices. Especially after the new lease law was implemented in July last year, causing the jeonse market to worsen drastically, the popularity of long-term jeonse housing soared. In the 39th round of priority applications for long-term jeonse housing, 11,669 people applied for 550 units, resulting in an average competition ratio of 21.2 to 1. Im Byung-chul, Senior Research Fellow at Real Estate 114, evaluated, "Long-term jeonse housing drew market response because it allows low-income people to live for a long time at affordable prices and aligns with the supply policy goal of housing stability."

Seoul Mayor Oh Se-hoon is attending the Cabinet meeting held at the Government Seoul Office in Jongno-gu, Seoul on the morning of the 13th. Photo by Hyunmin Kim kimhyun81@

However, despite its popularity in the market, supply has sharply decreased. Since its introduction in 2007, about 33,000 units have been cumulatively supplied, but most of the new supply steadily declined during former Mayor Park's tenure, with only 31 units supplied in 2018.

Experts believe that profitability issues influenced this trend. SH Corporation recorded an operating loss of 1.1873 trillion won in the long-term jeonse housing business over six years from 2014 to 2019. This accounts for more than half of the total loss (2.0844 trillion won) in all rental housing projects during the same period. The operating loss per household was 8.68 million won annually as of last year, more than three times the average for all rental housing (2.86 million won). This business structure incurs higher costs compared to other public rental housing. The deposit increase rate is capped at 5% per year, and since contracts are renewed every two years, cash flow is less smooth than monthly rent-type rental businesses.

There have also been cases of some vacant units due to excessively high jeonse deposits. Even if the deposit is 80% or less of the market price, jeonse for reconstruction apartments in the Gangnam area easily exceeds 500 million won, which is too high for those who meet the application criteria to afford. There was also controversy over whether the government was supporting high-priced jeonse homes for the "gold spoon" class.

Senior Research Fellow Shim said, "Securing funding to solve the deficit problem is a fundamental task," adding, "Rapid acquisition of supply sites is also crucial to achieve the goal of supplying 70,000 units within five years."