Jeonse of 21 percent of Seoul apartment units lower than two years ago

One out of five apartment units transacted on jeonse, where up-front cash is paid to the leaser for occupying a home for a contracted period, over the recent three months in Seoul turned out to be priced lower than two years ago. With jeonse prices plummeting in the housing market, owners cannot help but offer a lower down payment to attract tenants and otherwise are left to return some part of the deposit money to the existing tenant. Indeed, jeonse prices are showing an obvious downward trend. Even so-called “gap investors,” who took out a loan to buy a house over budget, find it impossible to cover the gap due to a reduced jeonse deposit and beg their tenants to stay longer.

The past three months have seen 5,050 jeonse transactions in Seoul involving reversed prices. Twenty-one percent of 23,700 apartment units transacted on jeonse in Seoul during the period were reported to be more affordable than two years ago. The reversed trends in jeonse prices prevail across Gangseo, Gangdong, Yangcheon, and Gangbuk-gu. However, it is also the case even in the Gangnam area, one of the most preferred residential choices. For example, jeonse prices of some four-year-old apartment units of 84 square meters in Gangnam-gu have halved from 1.6 billion won last year to 800 million won.

Tenants may normally be happy about decreasing jeonse prices. However, with the prices sharply dropping, they are likely to be held back waiting to get their money returned even if they consider moving out due to their work or kids’ schools. As bank loans have become hard to get and interest rates are too high, homeowners also struggle to swiftly secure not too small an amount due to decreased jeonse deposits. The worst-case scenario is that tenants can get their down payment back only after the house is sold by auction; otherwise lose some or all the money they have deposited.

What’s worse, the reserved jeonse prices will only get worse for a while because many tenants prefer to pay monthly fees, which they believe may lower the risks of losing their money due to jeonse scams. Added to this, the number of new apartment units on jeonse will likely increase when owners no longer have to spend some years in apartment units subject to the price ceiling system, which stands to be lifted according to the government’s real estate market policy released on Jan. 3. Considering that there will be a considerable rise in the number of people moving into new apartment buildings over the first half of the year, jeonse prices will be driven into a stiffer downward spiral.

This is why the government should take deliberate measures to save tenants from the consequences of reversing jeonse prices. To this end, it has to strengthen home warranty provided by policy organizations to make sure that working-class families and younger generations secure their down payment which may likely account for the largest portion of their assets. Likewise, loan-associated assistance needs to be provided to homeowners if they cannot afford to give back jeonse deposits. In particular, more stringent action should be urgently taken to protect tenants of a tenement and multi-household houses, jeonse prices of which are way higher compared to selling prices than those of apartment houses.