Don’t do anything, pleaseThe government is to come up with a measure this week to stabilize the jeonse (long-term rent with lump-sum deposit payment) market. Jeonse rents have become extremely short in Seoul and all other parts of the country. According to the Korea Appraisal Board, jeonse prices for apartments have gained 0.21 percent in the third week of October from the previous week — the fastest weekly increase in five years and six months. In other data from KB Bank, jeonse prices for apartments in Seoul surged by the biggest margin in nine years.
The jeonse market is in chaos. Amid the unprecedented scarcity in offerings, owners and tenants are in tense conflict. Tenants fight over any new offerings and realtors must decide the winner by making them draw lots. Tenants claim their rights to extend the lease term for another two years under the revised law, while landlords threaten to move in, citing their residential right to avoid a tax bomb.
In other cases, tenants fight amongst themselves after existing tenants refuse to move out by flagging the right to extend the lease for another two years. Landlords are even forced to compensate them for their moving costs or persuade their existing tenants to move out with cash. Everyone — the homeowner, tenant, seller and buyer — has become a sad victim to poor government policy.
The government insists on no wrongdoings and instead blames it on cheap interest rates. Ultra-low interest rates could be a factor behind jeonse scarcity. But the government caused the immediate catastrophe. It dried up supplies by unleashing multiple regulations on multi-homeowners and speculative housing investment. But demand has surged after the price of new apartment offerings was capped. Through the bombardment of taxes and reduction in redevelopments, the government forced landlords to live in their homes. Landlords inevitably had to kick their tenants out to move in. The Tenant Act only worsened the situation. A string of short-sighted policies has destabilized the market entirely.
Many had warned about the side effects from the Tenant Act calling for automatic extension of lease terms up to four years and cap in annual rises in rent prices. The law was still railroaded. As a result, the government is to trot out its 24th set of real estate measures.
The measures are expected to include increased supplies of public rents and tax incentives for monthly rents. The government is basically asking people to settle for monthly rents because it cannot do anything about the jeonse crisis. Experts say inaction would be the best action. Even if it takes time, the government must change course in its real estate policy.