Trend shifts to monthly rent deals

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Trend shifts to monthly rent deals

The Korean housing market has entered the era of monthly deals as traditional jeonse (lump-sum deposit rent) contracts are falling out of favor fast.

The so-called wolse (monthly rent) deals in Korea accounted for a record 44.2 percent of the total 1.47 million housing transactions made last year, according to 2015 data from the Ministry of Land, Infrastructure and Transport.

Such trends reflect how Korean landlords are increasingly turning jeonse contracts into monthly ones, searching for higher income than simply earning several thousand won from bank deposits amid continuing lower-than-ever interest rates.

Statistics Korea even plans to raise the weighted value of wolse spending when it compiles consumer prices next year. Currently, jeonse prices account for 6.2 percent of the consumer prices’ calculation, a lot higher than the wolse prices at 3.08 percent.

A Shinhan Financial Investment report on Tuesday said the trend has started to impact the stock market, where housing and building management-related stocks will see their prices rally, rather than home builders, as the local housing market increasingly becomes rental-oriented.

“The shift in the local housing market from jeonse to wolse is an unavoidable trend,” said Yoon Chang-min, an analyst at Shinhan. “Considering Japan, which has shown similar economic trends as Korea, companies with building management and rental businesses will thrive, unlike builders that focus on new construction.”

Japan became a super-aged society, in which more than 21 percent of the total population is over the age of 65, in the mid-1990s. It also saw a rising number of single-person households. These two factors resulted in a sharp increase in the number of rentals.

The Japanese construction industry changed, seeing rapid growth of overall real estate management companies, while the growth of home builders slowed.

Mitsui Fudosan, a real estate management company that focused on the construction and presale of buildings in the past, expanded its business into rentals, brokerages and management of unsold houses.

The company saw its revenue rise by 31.49 percent to post 1.52 trillion yen ($13 billion) in 2014, up from 1.15 trillion yen in 2002, thanks to the revenue generated by new business units that accounted for more than half of the company’s total revenue in 2014.

Kajima Corporation, a construction firm that decided to stick to the traditional building and presales businesses, faced shrinkages in revenue. The builder’s revenue shrank 26.17 percent to 1.52 trillion yen in 2014, compared to 2.06 trillion yen in 2002.

Mitsui Fudosan posted an 11.4 percent growth rate in operating profit in 2014, up from 8.9 percent in 2002. Kajima’s growth rate went down from 2.1 percent in 2002 to 1.5 percent in 2014.

“The future of Korean builders will be completely different depending on their restructuring strategies, given the Japanese counterparts’ cases,” Yoon from Shinhan said. “Builders these days have to come up with new business models, in which they can profit from aftercare on houses they build, such as rental housing management, residential services and renovations.”


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