Jeonse Deposit Guarantee Losses Near 2 Trillion Won This Year... Q1 Recovery Rate Only 17%
by Roh Kyungjo
Published 19 May.2024 09:25(KST)
The scale of jeonse deposit guarantee incidents caused by landlords failing to return the jeonse deposit on time has approached 2 trillion won this year.
According to the Housing and Urban Guarantee Corporation (HUG) on the 19th, the amount of jeonse deposit return guarantee incidents from January to April this year was 1.9062 trillion won, a 76% increase compared to the same period last year (1.083 trillion won). By month, the amounts were 292.7 billion won in January, 648.9 billion won in February, 493.8 billion won in March, and 470.8 billion won in April. The total number of incidents was 8,786 cases.
The jeonse deposit return guarantee is a product where HUG first returns the deposit to tenants who have not received their deposit back using its own funds, and then recovers the amount over 2 to 3 years by claiming subrogation rights against the landlord and through auctions.
Due to the ongoing effects of jeonse fraud and reverse jeonse, the annual incident amount this year is expected to surpass last year's record high of 4.3347 trillion won.
As the guarantee incident amount grows, the subrogation payment amount is also increasing. The subrogation payment amount refers to the money HUG pays on behalf of the landlord when tenants request the return of the jeonse deposit. From January to April this year, it was 1.2655 trillion won, a 55.8% increase compared to the same period last year.
On the other hand, HUG's recovery rate of subrogation payments from landlords remains in the 10% range. The annual recovery rate (recovered amount in the current year / subrogation payment amount) fell from 58% in 2019 to 24% at the end of 2022, and 14.3% at the end of last year. Last year, HUG paid 3.5544 trillion won to tenants on behalf of landlords, but only recovered 508.8 billion won.
The recovery rate of subrogation payments in the first quarter of this year was only 17.2%. HUG returned 884.2 billion won in jeonse deposits and recovered 152.1 billion won. A HUG official said, "It usually takes 2 to 3 years from subrogation payment to debt recovery," adding, "With the recent rapid increase in subrogation payments, the recovery rate for the current year has dropped to the 10% range."
Meanwhile, the jeonse price ratio (jeonse price compared to sale price) of Seoul villas, which had fallen to the high 60% range last year, has been gradually rising this year. Although villa jeonse prices are still declining, market prices have fallen even more, causing the jeonse price ratio to increase. Generally, when the jeonse price ratio exceeds 80%, it is classified as a 'Kkangtong Jeonse' (empty shell jeonse), meaning tenants may not be able to fully recover their deposits even if the house is sold.
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