[INTERVIEW] DN Korea slices and dices jeonse to make it easier on tenant

Industry

Published: 03 Jul. 2022, 16:00 Updated: 06 Jul. 2023, 17:05

[INTERVIEW] DN Korea slices and dices jeonse to make it easier on tenant

Kim In-song, co-founder and chief strategy officer of DN Korea, which runs Dongnae, talks at the company's office in Jung District, central Seoul. [PARK SANG-MOON]

In Korea, one category of apartment leases can be complicated, involving a massive deposit, which is returned at the end of the agreement, and no or small monthly payments.

These jeonse deals — said to be unique to Korea ― are capital intensive, usually requiring more than $100,000 of cold hard cash, or involve financing that might be difficult for some foreigners to obtain. Strange concepts like half-jeonse contracts, a hybrid that requires both a smaller jeonse deposit and a small monthly payment, just make things worse.

Jeonse is tough for Koreans and nearly impossible for many foreigners to navigate.

In this problem, one company saw a product. DN Korea acts as the middleman so that a jeonse contract looks more like a monthly rental — known as wolse in Korea — to the end user.

DN Korea was founded in 2020 by WeWork veterans Kim In-song, now DN Korea chief strategy officer, and Matthew Shampine, currently DN Korea's CEO.

Transactions arranged by the company are a two-step process, with DN Korea first leasing an apartment, paying the landowners the contracted deposit and desired rent every month. The company then on-leases it to home-seekers for a lower deposit but higher monthly rent.

The company's Dongnae FLEX apartments are listed on its website. DN Korea currently sub-leases 150 apartments in 80 apartment complexes in the southern Seoul area and in Panggyo, Gyeonggi, although revenue and user numbers aren't disclosed.

The average deposit is 15 million won, compared to the average jeonse of 500 million won. Rents range from 2 to 5 million won.

"It's hard for foreigners to get jeonse loans, and they tend to only get a maximum 200-million-won loan even if they lived in Korea for a very long time," Kim said. "We act as a third-party management company that takes care of all those problems."

Dongnae PLUS is the company's appliance rental, cleaning and home decor consulting service.

Kim has also had experience as an analyst and investment manager at the Reserve Bank of Australia and Korea's AIP Asset Management. He hopes to combine his property leasing experience and finance background in a industry where both are very important.

The Korea JoongAng Daily sat down with Kim for an interview on June 21 at the company's office in Jung District, central Seoul, to talk about the company's business and plans for the future.

Below are edited excerpts from the interview.

A screen grab shows apartments available to be leased on Dongnae FLEX. [SCREEN CAPTURE]

Q. Dongnae started as a real estate brokerage service, but ditched the business last year. Why did the company make the decision, and did it affect profits in anyway?

A. We initially wanted to change the property market by introducing nice houses that people didn't know existed. But we faced a lot of obstacles, mainly because there was no ideal house in the market that people were looking for. I had experience in the sub-leasing business when formerly working at WeWork, and decided to try lowering jeonse deposits through sub-lease agreements. Testing it out in July last year, we actually got so much positive feedback.

After a test run in July and August, we decided to focus on the business because it's something we can make a huge impact through, and there was also high demand. For our previous business, brokerage commission fees were falling. Real estate agents we worked with were struggling because of that, and we thought we couldn't make a strong impact through the business model.

What group of customers does Dongnae FLEX target?

When we first started our business, we assumed that a lot of foreigners will use our services because they are more used to leasing homes with low or no deposits and paying monthly rent.

Our CEO worked as the general manager of WeWork Korea, and when he discussed the issue with regional managers in other countries, they mentioned there were a few inconveniences. Companies have a set housing budget when they send employees abroad to work in Korea, but those budgets were only enough to pay for monthly rents, because the companies didn't know how Korea's property market works.

Employees would find an apartment they want to live in, but would have to pay another 1 billion won in jeonse deposits. That leaves a small scope of houses they can choose to live in, and we thought our services would be very appealing. And a lot of foreigners do rent apartments through us.

But about 80 percent of our customer base is Korean. Most of them are people who invest avidly, such as stocks, bonds or cryptocurrency, and would want to invest the big deposit instead of giving it to the landlord for few years.

With 20 percent of customers foreign users, what foreigner-centered services does Dongnae offer?

Our management team all speak two or more languages, such as English, Korean, Japanese and Chinese. When we have a foreigner who rents an apartment through us, we assign one manager that can explain the entire process in their mother tongue.

They also find the leasing and moving-in process difficult because there are so many complicated steps. You have to pay brokerage commission fees and register as a resident with the local district office. We guide them through the entire process, and our foreign customers have been really liking what we do.

There are some real estate agents who specialize in brokering homes for foreigners, but they tend to only provide help until the contract is signed. Help isn't provided after the tenants move in, and that's where we become more appealing.

Kim In-song, co-founder and chief strategy officer of DN Korea, poses in front of the company's office in Jung District, central Seoul. [PARK SANG-MOON]

What kind of support does Dongnae provide to tenants and landlords after the contracts are signed?

We redo all the wallpaper when the houses are up for rent. Some people are also hesitant to contact their landlord every single time something needs a fix, but we have an application where the tenant can indirectly and conveniently leave those inquiries. We also have professional repair workers we work with, who can make those fixes right away.

For the landlords, we ensure they get higher income. Even if the usual lease agreement says the tenant will pay 3 million won per month, the landlord will eventually end up with about 2.5 million won. This is because apartments are sometime left empty without tenants, things that are broken need to be fixed, and some tenants are late to pay their monthly rent.

When working with us, we pay the monthly rent a day ahead of the agreed date.

Many real estate services offer virtual tours of apartments, and so does Dongnae. But a lot of people still believe they need to come see apartments themselves before deciding to rent the lot. How many users use Dongnae's virtual tours, and would the market grow?

About 10 to 15 percent of our customers sign rental contracts after only seeing the apartments through our virtual tours, and we think it's a very significant number.

Showing the interior of the house through VR tours is very common, especially for one-room studios. But the reason why people still visit houses in-person is because they don't know if the house will be as same as the virtual tours. There could be small dents in the wallpaper or the house could smell bad if a smoker lived there before. And this is where our property management expertise plays a big role.

We ensure the quality of our apartments through the Dongnae Standard program, checking small details, such as whether the doors open and close well or if the cabinets aren't dented. People know we have a strict standard and sell qualified apartments, and sign contracts without visiting in-person.

And we do think the demand will grow. We film the house when each tenant moves out, and we have a huge library. This also helps when the landlord and the tenant dispute over about who made the damage.

What are some future goals that DN Korea aims to achieve?

One of our mid-term goals is to change the prejudice that exists for people living through wolse contracts. Many people feel bad if newly-weds live in a wolse-contract house, but that's just a lifestyle choice that we don't have to stereotype.

There are cases in which paying wolse and using the bigger sum of leftover money to make aggressive investments brings better outcomes. I majored in investment, and a lot of investment books say young people should diversify investments, invest aggressively and invest in liquid assets. But investing in apartments goes against all three factors. Of course, it would be each and everyone's choice, but we think people could see better outcomes when they turn their attention to other solutions.

BY LEE TAE-HEE [lee.taehee2@joongang.co.kr]