Freak jeonse slide set to continueJeonse, or lump-sum deposits, for two-year housing rental contracts usually skyrocket when real estate prices drop. As such, it was little surprise that they shot up 13.4 percent last year when apartment prices in Seoul fell 0.4 percent.
However, the situation has changed in recent months, as deposits have dwindled in the Seoul metropolitan area in tandem with apartment prices.
According to JoongAng Ilbo Joins Land, a Web portal that focuses on real estate, apartment prices in Seoul fell 0.28 percent in May from April, while prices in Bundang and Ilsan, both in Gyeonggi, retreated 0.66 percent.
Seoul prices have been winding down since March last year, while those in Bundang and Ilsan have been sinking since October.
But jeonse prices started declining this April. They slid 0.09 percent in Seoul that month and 0.05 percent in May. In Bundang and Ilsan, the prices fell by 0.06 percent in May, marking the first decline in 38 months.
The stems from a supply glut of houses, especially studios and smaller properties for one or two people.
“When the housing market slows and there is an oversupply of properties, both jeonse and purchasing prices can fall together,” said Sohn Jae-young, a professor at Konkuk University who specializes in the real estate market.
According to the Ministry of Land, Transport and Maritime Affairs, the number of newly built apartments in the Seoul metropolitan area stood at 33,383 between January and April, down from 41,601 new apartments in the same period last year.
This number rises to 137,422 if newly built studios and government-subsidized villas, usually four-story apartment buildings, are factored in, up 20,000 from 2011.
In Seoul alone, about 9,600 more houses have been built in the first four months compared to the corresponding period last year. This year, roughly 10,000 studios will go on sale.
“Supply of these studios is outpacing demand for jeonse contracts [leading to many empty new houses and a decline in prices],” said Park Won-gab, a senior researcher at Kookmin Bank real estate department.
The supply glut is so severe that tens of thousands of studios and small houses remain empty in Gimpo alone. More than 11,000 households have moved into the Han River Newtown in Gimpo since last year, but barely 20 percent of houses on the market in the area have been rented or sold.
On the other hand, demand for jeonse contracts has shrunk. An important factor that has affected supply and demand is the mobility of students. This year, the number of families who have relocated to a different school district to benefit their children’s education has plunged.
According to Statistics Korea, the number of students in Seoul whose families relocated to a new district fell 23 percent from 1.58 million in 2000 to 1.21 million in 2011.
Students who moved from other parts of Seoul to the Gangnam area stood at 1,458, a low not seen since 2000.
Due to the overall fall in the number of students and school transfers, jeonse prices in prestigious Gangnam and Nowon and Yangcheon districts saw significant drops.
“I’ve barely seen anyone looking for homes near their kids’ schools this spring,” said Kim Sang-yeol, CEO of a real estate firm in Gaepo-dong in Gangnam.
Demand for new houses among newlyweds has also declined as many couples avoided getting married this year for superstitious reasons. According to the Korean calendar, 2012 features a “leap month” taking the total to 13.
Property and jeonse prices are expected to keep falling as global uncertainties put people off buying.
“The concurrent declines are likely to continue until the second half, when Seoul unveils its development plan for the New Town district,” said Kim Hyun-ah, a researcher at a local institute.
By Park Il-han [firstname.lastname@example.org]
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