"Affordable Offers"... Seoul Mid-Range Jeonse Prices Dropped from 600 Million to 400 Million Won Range

Since the implementation of the new lease law, the median jeonse price of apartments in Seoul, which had soared to around 600 million won, has returned to the 400 million won range after 2 years and 7 months. This is interpreted as a result of landlords lowering jeonse prices to attract tenants as the aversion to jeonse intensified due to high interest rates.

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According to KB Real Estate on the 26th, the median jeonse price of apartments in Seoul in April was 498.33 million won. It is the first time in 31 months since September 2020 (468.33 million won) that the median jeonse price of Seoul apartments has fallen to the 400 million won range.

The median price is the price that falls in the middle when the survey samples are arranged in order. Unlike the average price, which is greatly influenced by price fluctuations of high-end housing, it only considers the exact middle price, making it more suitable for judging market trends.

The median jeonse price of Seoul apartments rose to the 500 million won range in October 2020 as the jeonse shortage spread after the new lease law was implemented in July 2020. It then surged to the 600 million won range in March 2021, just five months later. However, due to the increased burden of jeonse interest caused by the US interest rate hikes in the second half of last year, it fell back to the 500 million won range in October last year, and then dropped to the 400 million won range within six months.

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In addition to high interest rates, the severe aversion to jeonse among tenants was greatly influenced by the spread of jeonse fraud and "empty jeonse" (Kkangtong Jeonse). As tenants chose monthly rent instead of jeonse, landlords had no choice but to lower jeonse prices to find new tenants. According to the Korea Real Estate Board, the jeonse price of Seoul apartments fell by 9.57% until March this year. Analyzing actual transactions, a 59.96㎡ (exclusive area) unit in Sinchon Gran Xi, Daehyeong-dong, Mapo-gu, was leased for 1.1 billion won in May last year, but was traded for 750 million won on the 22nd of this month. This means a discount of 350 million won in less than a year. The actual jeonse transaction price of an 84.93㎡ unit in Ipeonhansesang Geumho Park Hills, Seongdong-gu, also dropped from 1.1 billion won in May last year to 770 million won on the 28th of last month.

In this trend, it has recently become common to lower the price when renewing lease contracts compared to the previous contract. Jin Tae-in, head of the apartment brokerage team at Jiptos, explained, "Due to the interest rate hikes and jeonse fraud, demand for jeonse transactions is decreasing," adding, "Jeonse loan interest rates are still high, so the rate of lease renewal contracts with reduced jeonse prices has increased to 25%."

However, with the continued decline in jeonse prices and jeonse loan interest rates, tenants who had moved to the monthly rent market are gradually returning to jeonse. According to the Seoul Real Estate Information Plaza, as of April, jeonse accounts for about 62% of the entire lease market, with 6,434 cases out of 10,427. It had fallen to 48% in December last year but is rapidly recovering.

Therefore, the decline in jeonse prices is likely to narrow for the time being, but the downward trend is expected to continue as interest rates remain high and new housing supply is concentrated in the Gangnam area. This year, a total of 38 complexes with 33,338 households will be supplied in Seoul, of which 27%, or 9,037 households, are concentrated in the Gangnam area.

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