Ballooning jeonse new threat to middle classConcerns mounted over the country’s real estate prices, as a group of civic activists called for measures to stabilize the cost of jeonse (lump sum rent).
Since President Park Geun-hye took office in February 2013, the price of jeonse deposits has surged despite scant improvements in household incomes, said representatives from the Citizens’ Coalition for Economic Justice.
Average jeonse prices for residential apartments in Seoul, Incheon and the Gyeonggi area skyrocketed to 250 million won ($220,000) in September from 190 million won in February 2013, according to data from the Korea Appraisal Board.
But during a similar period, from the first quarter of 2013 to the second quarter this year, the average monthly household income rose only 80,000 won, data from Statistics Korea showed. The average monthly income of a family with two or more members rose to 4.27 million won from 4.19 million won during the period.
“Jeonse deposits are skyrocketing and threatening the livelihoods of the people,” said Go Gye-hyeon, a representative of the civic group at a rally on Tuesday in front of the National Assembly.
A representative of the Korean Union of Tenants, which runs an online community that coined the term “rent-poor,” a play on the familiar term “house-poor” describing people who can’t afford to spend on anything other than their mortgage, also attended the protest.
“The government created a bubble in the real estate market by removing regulations, such as the ceiling on maximum public offering prices in apartments, for the sake of stimulating real estate sales,” said Choe Chang-wu, a leader of the association. “Ordinary people can’t afford such housing costs on their own incomes, so they are subsisting on loans.”
The ratio of jeonse deposits to sales prices of apartments surpassed more than 70 percent for residential apartments at the end of September, 72.9 percent on average nationwide, according to data from KB Kookmin Bank on Oct. 1. The ratio was the highest this year.
The protestors demanded a cap on raises in jeonse prices, such as less than 5 percent annually, or guaranteeing a right for tenants to extend jeonse rent contracts up to six years. Currently, jeonse contracts are for two years, and landlords can ask for a hike if they are renewed.
Finance Minister Choi Kyung-hwan’s lifting of regulations on real estate, such as raising debt-to-income and loan-to-value ratios, boosted demand for apartment sales in the country and increased levels of household debt at the same time. Four cuts in interest rates by the central bank since July 2014 to a historic low of 1.5 percent also led many landlords to turn to monthly rentals rather than accepting jeonse lump sums, since they couldn’t earn much money from those deposits in the bank.
“The jeonse price in a unit of a residential apartment in Heukseok-dong, southwestern Seoul, was 350 million won a year ago, but it jumped nearly 100 million won,” said Hwang Do-su, a law professor at Konkuk University who joined the rally.
Regulating the jeonse market directly could generate lots of problems, said Park Sun-ho, a spokesman for the Ministry of Land, Infrastructure and Transport.
BY KIM HEE-JIN [firstname.lastname@example.org]