Four in ten apartment contracts in August were monthly rentals
Four out of 10 apartment lease contracts made in Seoul in August were for monthly rent, as more landlords are shifting their jeonse long-term deposit units to monthly rent in an effort to make up for their high real estate taxes.
According to data provided by a real estate information system run by the Seoul Metropolitan Government, a total of 12,567 apartment lease contracts were made in August. Of these, about 40 percent were monthly rentals, up 3.9 percentage points compared to the previous month.
This can be mainly attributed to the government trying to stabilize real estate prices last year through strengthened real estate measures. As the government applied heavier real estate taxes to owners of multiple homes, more landlords have been switching their jeonse properties to properties with monthly rent in order to generate a steady cash flow.
The government raised the maximum rate of comprehensive real estate tax to 6 percent from 3.2 percent. Comprehensive real estate taxes are calculated based on the appraised value of real estate decided by the government. The appraised value of properties in Seoul rose 19.89 percent this year compared to last year.
By region, about 45.1 percent of all lease transactions made in Gangnam District, southern Seoul, were for monthly rents in August, up 6 percentage points compared to July. In Songpa District, southern Seoul, the number grew by 12.4 percentage points to 46.2 percent during the same period while about 52.2 percent of transactions in Mapo District, western Seoul, were monthly rentals, up by 12.2 percentage points.
In the Bangbae 1-Cha Hyundai Hometown Apartment complex in Seocho District, which is home to 644 households, 55 lease transactions were signed between Jan. 1 and Aug. 31. Of them, 65.5 percent, or 36 transactions, were for monthly rent, according to data compiled by the Ministry of Land, Infrastructure and Transport.
For the Yeoksam Raemian apartment complex in Gangnam District, which is home to 1,050 households, nearly 60 percent of lease contracts made during the same period were monthly rent contracts.
“Landlords these days prefer monthly rent over jeonse,” one real estate agent in Gangnam said. “It’s because now they face heavier taxes and interest for loans and they'd like to pay them off with the rent payments they receive from tenants.”
The surging prices of jeonse units are also a contributing factor. As more landlords switch from jeonse to monthly rent, it leads to a shortage of jeonse apartments. The shortage of available jeonse units in the market causes the prices to rise, and tenants who can’t afford the high prices have no choice but to choose an apartment with monthly rent.
The average jeonse prices of Seoul apartments were about 643.5 million won ($550,000) in August, a 26.1 percent on-year increase, according to data from KB Kookmin Bank's Liiv Real Estate.
The prices of monthly rents are also surging rapidly.
A total of 42,672 monthly rent property contracts have been signed between Jan. 1 and Aug. 31, and 12,397, or 29.1 percent, of these contracts included a monthly rent of over 1 million won. Two-hundred and twenty of those were contracts were for more than 5 million won per month while 25 were for over 10 million won a month.
Last year, the monthly rent for an 84-square-meter (904-square-foot) flat in Helio City apartment complex in Songpa District was about 2.5 million won, with a deposit of 100 million won. But the same-sized apartment is currently trading for the same deposit price but 3.5 million won in rent, up 40 percent on year.
“If landlords face heavy taxes, they will likely want to collect more money from tenants. This is just a basic theory that anyone can figure out,” said Seo Jin-hyung, head of the Korea Real Estate Society. “The new real estate measures caused the shortage of jeonse apartments which has been causing serious problem in the market.”
“The government should ease the related regulations that can encourage multiple-home owners to release their properties in the market under jeonse contracts."
BY KIM WON, SARAH CHEA [firstname.lastname@example.org]