Minister vows to protect tenantsFinance Minister Choi Kyung-hwan has pledged to protect tenants from losing their jeonse as the amount of lump-sum rental deposits surges to as much as 90 percent of the value of the property.
“Due to the low interest rates and decreasing number of jeonse leases, in some regions jeonse deposits exceeded 80 or 90 percent of the value of property,” Choi said on Wednesday at a meeting with economy-related ministers in Seoul. “The excessive jeonse deposits against the property price could pose a significant threat to housing stability for tenants, because it could be difficult [for landlords] to return the lump sum” at the end of the agreement.
According to the state-run Korea Appraisal Board, an 85-square-meter (914.9-square-foot) Hansin Apartment in Byeongjeom-dong, Hwaseong city, Gyeonggi, was on the market for 185 million won ($168,288) on Feb. 20, while its jeonse was 170 million won.
When interest rates were higher, jeonse deposits used to be about half of property prices and landlords could make sufficient profit by depositing them in their bank accounts.
However, as the government’s monetary easing policy has lowered interest rates, property owners have raised the amount of jeonse or turned to monthly rentals.
Some properties of indebted owners were seized by banks and auctioned, but tenants failed to receive the entire amount of their deposits back if the houses failed to fetch a sufficient price or the tenants were not at the top of the list of creditors.
“The government will make all efforts to monitor situations that represent a high risk to jeonse deposits,” said Choi.
As jeonse deposits get higher and higher, more and more landlords are switching to monthly rentals, according to a Land Ministry report on Wednesday.
The Ministry of Land, Infrastructure and Transport said in the report that the share of monthly rentals increased to 43.5 percent of the market in January from 39 percent in October.
Koreans still preferred the jeonse system or monthly rental agreements to purchasing houses, according to the report.
The number of jeonse and monthly rental transactions in January stood at about 100,900, the report said, an increase of 7.8 percent from December.
“Despite expensive jeonse deposits and several ensuing risks, many Koreans still prefer jeonse or even monthly payments because they are reluctant to purchase houses because of the bleak outlook for housing prices,” said a government official. “The low-interest rate policy also encourages tenants to borrow jeonse deposits from banks. And they don’t have to pay taxes if they choose a jeonse agreement.
“Landlords, however, find they can’t earn enough from depositing the jeonse money in their bank accounts,” he said.
“So the supply of jeonse rental houses is shrinking, while the demand is still surging despite the expensive deposit.”
BY KIM HEE-JIN [firstname.lastname@example.org]