The Korea Herald

지나쌤

‘Jeonse’ no more? More Koreans opt for monthly rentals under debt burden

With constant rate hikes, jeonse might disappear in 20-30 years

By Byun Hye-jin

Published : May 31, 2022 - 15:42

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Apartment complexes, housing and commercial units surrounding the new presidential office in central Seoul’s Yongsan are seen from Namsan, Tuesday. (Yonhap) Apartment complexes, housing and commercial units surrounding the new presidential office in central Seoul’s Yongsan are seen from Namsan, Tuesday. (Yonhap)

Monthly lease contracts exceeded half of South Korea’s home rentals and surpassed “jeonse” transactions for the first time in April, government data showed Tuesday, mostly due to greater debt burden sparked by soaring interest rates on loans.

Of the total 258,313 lease transactions for apartments and houses, 50.4 percent of them were for monthly rentals in April, according to the Ministry of Land, Infrastructure and Transport. Jeonse contracts -- a lump-sum returnable deposit for tenants usually looking for a two-year stay -- accounted for 49.6 percent in the cited period.

It is the first time that monthly rental transactions surpassed the 50 percent mark and jeonse transactions since 2011 when the government started collecting data.

From January to April, the cumulative transactions for monthly rentals accounted for 48.7 percent, higher than last year’s 42.2 percent and the five-year average, 41.6 percent.

Industry insiders said interest rates on loans have surged due to rate hikes, imposing financial burden on those seeking to lease apartment and houses through jeonse.

South Korean banks’ annual rates on mortgage loans rose to an all-time high in over nine years in April to an average of 3.9 percent, up 0.06 percentage point from a month earlier, data from the Bank of Korea showed.

The central bank recently lifted the rate from 1.5 percent to 1.75, reflecting a tight monetary policy to tackle high inflation.

“These days, interest rates on loans start from a minimum of 4 percent. Tenants have to pay back higher interest rates to banks than monthly rents to house owners,” said Kim In-man, head of the Kim In-man Real Estate Research Center. “With the end of a low-rate market, there is no point in taking out jeonse.”

Kim said with constant rate hikes, jeonse might disappear in 20 to 30 years, citing that it is a unique system created in South Korea, which has taken root since a government-led economic expansion in the 1970s.

The ministry pointed out that monthly rent contracts have skyrocketed due to the raft of real estate regulations by the Moon Jae-in administration. The new laws were intended to protect tenants from landlords, but instead pushed homeowners to switch from jeonse to monthly rents.

However, with President Yoon Suk-yeol’s inauguration, sales of apartments and houses have started to rebound amid growing hopes for relaxed regulations in the real estate market. The sales volume increased by 9.3 percent to 58,407 nationwide in April, compared to a month earlier.

In particular, real estate prices are smashing records in the Yongsan district following the Yoon administration’s decision to relocate the presidential office there.

Recently, an apartment at luxury residential complex Hannam The Hill in Yongsan-gu, Seoul, sold for 11 billion won ($8.9 million), up by 41.9 percent compared to 2021. It is by far the most expensive apartment sold this year.

The average price per 3.3 square meters of Yongsan-gu apartments also exceeded 60 million won for the first time. The figure jumped from April’s 59.2 million won to 60.1 million won in May.