"Rather Live in an Apartment than a Villa"…Seoul Small Apartments Jeonse Surpass Villas for 6 Consecutive Months

Despite the moving season, villas continue to be neglected in the jeonse market. Due to the aftermath of the jeonse fraud that occurred two years ago, those who lack financial resources and need to find villas are flocking to small apartments despite the financial burden. In this situation, the recent news that the Housing and Urban Guarantee Corporation (HUG) is raising the threshold for subscribing to the jeonse deposit return guarantee insurance has further entrenched the avoidance of villas. However, the government has stated that it has no plans to further strengthen the insurance subscription requirements, raising interest in whether the cold spell facing the villa market will ease in the future.

According to the ‘Seoul Small Housing (exclusive area 60㎡ or less) Lease Transaction Status’ received from the real estate information platform Dabang on the 3rd, as of October this year, 4,503 apartment jeonse transactions were made. Villa jeonse transactions amounted to 3,797. Apartment transaction volumes have surpassed villas for six consecutive months. Looking at the entire year, except for April (apartments 4,944 transactions, villas 5,063 transactions), apartment jeonse transaction volumes were higher than those of villas.

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Since the jeonse fraud incident that surfaced at the end of 2022, there has been a strong tendency to avoid ‘villa living.’ A Dabang official explained, "The trend of small housing jeonse transactions changed drastically after the jeonse fraud incident," adding, "The villa market showed signs of contraction and this continues to this day." The volume of villa jeonse transactions in Seoul was higher than apartments from January 2020 to November 2022, but in December 2022, apartments took the lead. The ‘reversal phenomenon’ of a higher proportion of apartment jeonse transactions continued last year as well.

The Housing and Urban Guarantee Corporation (HUG) raising the threshold for subscribing to the jeonse deposit return guarantee insurance also played a role. In May last year, the government set the insurance subscription eligibility so that only jeonse deposits within 126% of the publicly announced price (previously within 150%) could subscribe, aiming to prevent misuse of HUG guarantee insurance in the jeonse fraud incident. A Dabang official said, "Although the perception that subscribing to guarantee insurance is essential due to jeonse fraud has increased, the requirements have been strengthened, resulting in a significant reduction in the number of houses actually eligible for subscription."

However, recently, news that HUG might further tighten the standards has intensified the cold spell in the villa market. HUG is reportedly considering lowering the guarantee recognition ratio for the jeonse deposit return guarantee from the current 90% to 80%, strengthening subscription requirements to within 112% of the publicly announced price (publicly announced price 140% × guarantee recognition ratio 90%). If this plan materializes, landlords may have to lower deposits compared to before, causing financial damage and potentially accelerating the shift of villas to monthly rent.

According to a comparison by the real estate brokerage firm Jiptos between the Ministry of Land, Infrastructure and Transport’s actual transaction prices of villa jeonse and monthly rent and apartment prices, if the subscription requirements for the rental deposit return guarantee are strengthened from the existing 126% to 112%, 69% of villa jeonse contracts signed last year would not meet the subscription criteria.

However, contrary to what has been reported, the government and HUG have stated that they will not raise the threshold for guarantee insurance subscription. A Ministry of Land, Infrastructure and Transport official explained, "In February last year, HUG lowered the guarantee recognition ratio for guarantee insurance from 100% to 90%, and for the time being, no further lowering measures are being considered," adding, "If the requirements are strengthened, side effects such as further contraction of the villa market may occur, so there are currently no plans to review this."

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