Korea’s Jeonse money exceeds 90% of sale price for 76,000 households
January 22, 2014 1 Comment
Owing to an unbridled increase in jeonse price, apartments with key money deposits exceeding 90% of their estimated sale value are cropping up one after another in South Korea.
Given that apartments on auction are taken at an average of 83% of their estimated sale price, the situation means there will be an increase in jeonse tenants who end up losing some of their key money if owners are saddled with mortgages and end up selling the apartments through auction. Jeonse is a unique Korean housing rental system in which a tenant deposits a large amount of money instead of paying monthly rent to a landlord.
According to Real Estate 114, a Seoul-based real estate information provider, the number of households in the country that were rented with key money deposits exceeding 90% of their estimated sale value, including those in Seongbuk-gu in Seoul, Uiwang City in Gyeonggi Province and Yeongtong-gu in Suwon City, came to 76,549. The average difference between the estimated sale price of these apartments and jeonse price was 20 million won ($18,774) per household.
The jeonse price of Jugong-5 Complex (76.5㎡) apartments in Junggye-dong, Nowon-gu, in fact, rose to 330 million won compared to their estimated sale price at 370 million won. The price of Jugong apartments in Byeokjegol-9 Complex (59.3㎡) in Yeongtong-gu, Suwon, is quoted at 230 million won but the jeonse price is around 210 million won. The sale price of Samsung Raemian apartments (55.4㎡) in the nearby Naeson-dong, Uiwang City, is 280 million won but the jeonse money is around 260 million won.
Areas along Nowon-gu, Gongdeok-dong and Dangsan-dong in Seoul, where apartment complexes are concentrated, there has been a sharp increase in the number of apartments whose jeonse price has surpassed 80% of their estimated sale price. Apartments in Gangnam-gu, Seocho-gu and Banpo-gu, long known for big price tags, are also seeing the ratio of jeonse price compared to their sale price increasing sharply.
By region, Gwangju Metropolitan City had the most number of apartments which were rented with key money deposits exceeding 90% of their estimated sale price at 25,411 households, followed by Gyeonggi Province with 10,586 households, North Gyeongsang Province with 8,705 households, South Jeolla Province with 6,741 households, and Daegu City with 6,102 households. Seoul had 490 such households, Incheon City 2,607 households, Daejeon City 2,176 households, and Busan 1,326 households.
‘Jeonse’ prices continue on upward spiral
By Kim Tae-jong
“Jeonse” prices in Seoul have jumped by 0.47 percent in the first three weeks of 2014 year despite the government’s efforts to reign in its upward spiral, recent data showed Sunday.
Jeonse is a Korean-style lease system in which a housing tenant deposits a lump sum of money instead of paying monthly rent. The money must be returned once the contract ends.
The rate of increase is much higher than that in the same period last year when it stood at 0.35 percent, according to online real estate information provider R114.com.
In particular, jeonse across the country increased 0.2 percent on average during the same period, the 73rd consecutive week of rises and the longest streak in the country’s history. Comparable prices in metropolitan areas rose 0.27 percent. They jumped a respective 0.36 percent and 0.31 percent last year.
The price hike is expected to increase the financial burden on working-class and lower-income households, who prefer this rental scheme.
Jeonse has continued on an upward spiral as more people avoid buying homes and stick to the system due to lingering uncertainties in the real estate market.
In addition, there is growing demand for jeonse due to housing reconstruction projects in many districts in Seoul. With low interest rates, more and more landlords are attempting to transform jeonse into monthly rent.
The upward trend in Seoul have also affected jeonse of the surrounding areas of the capital such as Bundang, Sanbon and Pyeongchon, as people who can’t afford prices in Seoul decide to move to those areas.
The trend contrasts with an initial forecast that the jeonse market would stabilize this year thanks to the administration’s measures.
The government announced deregulation measures last year to control jeonse and stabilize the property market. The nation’s real estate market has been in a slump since 2008.
Some of the measures include the exemption of heavy capital gain taxes on multiple home owners from Jan. 1 and loans with low interest rates to first time home buyers.
The growing financial burden for jeonse tenants would also result in the so-called “rent poor,” who struggle to pay back bank loans every two years without any plans to own a house.
“Already about half of jeonse tenants are indebted,” a Seoul analyst said. “A jeonse hike would make household debt problems worse, as it is much higher than salary increases.”