‘Jeonse’ transactions hit 9-year low amid strengthened tenant protection law
The number of jeonse transactions dropped to a record-low in June due to a supply shortage triggered by a slew of revised laws intended to better protects the rights of tenants, data showed Monday. Unique to Korea, jeonse is a home rent system whereby tenants pay a lump sum deposit instead of monthly rent.
The sharp drop came as many landlords withdrew their jeonse offers from the market after the revised law guarantees up to four years of rent period from the current two, with the deposit hike limited to 5 percent of the previous amount. The collective move poses a further difficulty to tenants already under greater pressure to raise the deposit, a convenient way for landlords to offset the heavier property tax the government seeks to impose to curb real estate speculation.
The trading volume of apartment sales by contrast spiked driven by “panic buying” mostly by those in their 30s and 40s in response to heightened fears of completely losing the chance to secure stable living arrangements amid the rapid spike in home prices over the past three years. Prices look set to soar due to the government’s 22nd rounds of botched real estate policy.
Experts say an increasing number of landlords will ask for monthly rent instead of a jeonse deposit and that the new laws will hurt the entire property market. Data from a web portal that provides real estate information operated by Seoul Metropolitan Government showed jeonse transactions dropped to 6,304 in June, the lowest since the city government began compiling related data in 2011.
The June figure is less than half of 13,661 from February, the highest monthly trading volume in 2020. Adding in monthly rentals, the figure came to 8,344, only about 43 percent of the February figure of 19,232.
Gyeonggi Province also experienced the combined jeonse and monthly rent trading volume more than halved to 12,326 in June from 27,103 in February.
In sharp contrast to the severe contraction in the home rental market are sales transactions.
The number of apartments traded in Seoul was 15,589 in June, the third highest following 19,798 in October 2006 and 15,757 in November that year.
The figure for Gyeonggi Province was 34,950 in June, the highest since the municipality began compiling data in 2006.
Jeonse tenants will find it increasingly hard to ink new contracts, according to Myongji University professor of real estate Kwon Dae-jung.
“In the wake of a slew of government measures to curb real estate policy speculation, landlords will much rather take monthly rent over jeonse deposit,” he said.
“The sales of apartments will jump, a continued trend explained by rising jeonse prices, meaning home buyers consider it is a much better choice to buy a home rather than paying a higher-than-expected amount in deposit.”