Home deposits rise yet income fails to keep up

A 39-year-old office worker surnamed Lee was stressed ahead of renewing his jeonse, or lump-sum deposit contract, on his home. His original contract ends in July.

Lee paid 420 million won ($376,141) as a deposit on an 84-square-meter (904 square feet) apartment unit in Gangseo District, western Seoul in 2015. But the landlord is asking him to pay 70 million won more if he wants to renew his contract. He hasn’t been able to save up that much money so he would need about 50 million won in loans to renew.

Lee has decided to move to a different apartment where the rent is cheaper. “My wage is not going up and I don’t have much to save after paying mortgage interest and living expenses,” he said. “I really hope at least jeonse prices stay where they are at now.”

Jeonse prices that soared recently slowed last year, but renters’ financial burdens still remain high. Household income is barely changing as jeonse prices continue to rise.

Seoul’s jeonse prices rose more than 10 percent year-on-year in 2015 but dropped 2.8 percent last year. During the first four months of the year, prices have risen 0.48 percent year-on-year.

Renters that wish to renew their two-year jeonse contracts had to pay an additional 61.9 million won, as of last month, according to Korea Appraisal Board. This means that their rent has gone up more than 60 million won when compared to the original cost paid two years ago. Average jeonse prices in Seoul were 383.1 million won this year, which is 19.3 percent higher than the 321.2 million won they paid in 2015.

“Renters who are renewing their contracts need to pay more due to the price hike made since 2015,” said Kang Yeo-jung, a manager at Korea Appraisal Board.

During the same period, household income has barely risen. According to Statistics Korea, household income, or income for a family with more than two members, increased 1.6 percent year-on-year in 2015 and 0.6 percent in 2016. This means jeonse costs increased 500 percent faster than household income in the same period.

Contract renewals cost the most in Seocho District (151.1 million won), followed by Gangnam (120.6 million) and Songpa districts (87.3 million won). Northern Seoul regions such as Nowon District were lower with a 34.3 million won increase. Price hikes in Dobong District were 30.1 million won and 20.2 million won for Jungnang District.

Jeonse price increases in the country were 28.8 million won, and were high on Jeju Island at 45.8 million won and in Gyeonggi at 36.9 million won.

One of the possible policies that President Moon Jae-in is likely to make is to regulate the maximum amount of money landlords can raise for renters who are renewing.

“Current jeonse prices are not payable by working ordinary jobs,” said Choi Seung-sup, a manager at Citizens’ Coalition for Economic Justice, a civic group in Korea. “There needs to be a law to regulate the amount that landlords can raise costs.”

Shim Kyo-eon, a real estate professor at Konkuk University, however, disagreed with the idea. “Landlords might raise prices significantly at once before the new law goes into effect and this will give more financial burdens to renters,” Shim said. He worried interference in the free market system will create more negative impact than positive ones.

Some also worry about a fall in the number of renters due to the high supply. The number of available units until next year is about 1.2 million units and this is about 30 to 40 percent higher than average years.

“If the housing market slows and supply exceeds demand in the market, landlords might not even be able to return the deposit that they received back to renters,” said Song In-ho, a director at Korea Development Institute.

BY HWANG EUI-YOUNG [kim.youngnam@joongang.co.kr]