URL is copied.
Jeonse crunch
Listings disappear in key metro areas; tenants pushed toward burdensome monthly leases
Jeonse is a housing lease system unique to Korea.
The tenant lives rent-free during the lease term and receives a full refund of the deposit when the contract ends. The system is built on the expectation that home prices will continue to increase. The deposit can be used to finance a home purchase or take out another jeonse lease. In Korea, jeonse has served as a stepping stone for many non-homeowners to buy a home.
However, jeonse listings are rapidly declining in apartments across Seoul and the surrounding metropolitan area, where many people prefer to live, while jeonse prices are surging.
According to KB Kookmin Bank's real estate data, the average jeonse price for apartments in Seoul climbed to 681.5 million won ($468,000) in April, the highest since records began.
The median jeonse price of Seoul apartments reached 600 million won, returning to the 600 million won range for the first time since September 2022 (606.58 million won).
In the fourth week of last month, the jeonse supply-demand index in Seoul climbed to 181.4, a five-year high. An index reading above 100 indicates that demand exceeds supply. An index reading above 180 indicates a significant shortage of available jeonse properties.
These days, it's not uncommon for large apartment complexes of about 1,000 units to have only one or two jeonse listings available. There is reportedly a growing number of tenants signing jeonse contracts without even viewing the property.
As part of the government's Oct. 15 real estate package last year, land transaction permit zones were widened, reinforcing owner-occupancy requirements and significantly worsening the jeonse crunch. Buyers of homes in these zones are required to live in the property for two years. In other words, they are not allowed to rent out their homes immediately.
The zones were expanded to encompass all of Seoul and 12 areas in Gyeonggi Province.
The government plans to end the temporary suspension of heavy capital gains taxes on owners of multiple homes on May 9 without further extension. The policy is designed to push housing prices down by prompting multi-home owners to sell their properties. However, these owners are generally landlords renting out their homes on a jeonse or monthly terms. As a result, the measure is having the effect of reducing the supply of jeonse and monthly rentals.
The reduced supply of jeonse is being offset by an increase in monthly rentals.
In the first quarter of this year, monthly rentals (including semi-jeonse) accounted for 70.5 percent of lease contracts in Seoul, up 6.2 percentage points from a year earlier.
The share of monthly rentals for Seoul apartments rose to 50.8 percent, exceeding half. The figure is said to be not only the highest since records began in 2014, but also the first instance of monthly rentals overtaking jeonse in share.
The shift from jeonse to monthly rentals is likely to increase housing cost burdens for young people and lower-income households, potentially curbing savings and spending. The primary driver behind the rapid increase in monthly rentals is a shortage of jeonse supply. The lack of jeonse is leaving tenants with little option but to turn to monthly rentals, narrowing their housing choices.
Even under these circumstances, the government is reviewing further tax hikes on property ownership. Possible measures include raising capital gains and property taxes on owners of multiple homes and high-value properties, along with scaling back long-term holding tax breaks.
Landlords are likely to pass on the tax burden to tenants. This would inevitably increase upward pressure on jeonse prices and accelerate the shift to monthly rentals. A regulation-heavy approach targeting homeowners has resulted in side effects such as dwindling jeonse supply and growing monthly rentals.
To ensure affordable housing for tenants, the government needs to refrain from overregulating homeowners and concentrate on revitalizing the jeonse system.
(END)