1000s of jeonse deposits not returned as 'villa kings' default

Economy

Published: 26 Dec. 2022, 17:45 Updated: 06 Jun. 2024, 18:01

1000s of jeonse deposits not returned as 'villa kings' default

A sign at the door warns people to be cautious of housing rent-related fraud in Incheon on Dec. 21. [YONHAP]

More than 2,000 tenants have not received jeonse deposits back as some apartment owners have lost or squandered money they were supposed to keep safe.

Democratic Party lawmaker Park Sang-hyuk on Monday, citing Korea Housing & Urban Guarantee Corporation (HUG) statistics, found 2,073 cases of jeonse deposits not returned.

Under Korea’s jeonse system, apartments are leased for a fixed term in exchange for a sizable but refundable deposit. The lessor is free to use the money as they see fit.

The top ten list of owners not returning deposits last year includes the "villa king," who purchased over 1,000 apartments and owed 6.2 billion won ($4.85 million) of comprehensive real estate tax when he died in October.

With the rapid rise of property prices in recent years, many punters took advantage of the system to make leveraged bets on real estate using other people's money.

They would take one deposit and use it to buy another apartment. For cheaper units, known as "villas' in Korea, the jeonse deposit is very close to the purchase price, and sometimes higher.

It all works if real estate prices keep rising, and if the owner can get one tenant to replace another without any vacancy. But that didn’t happen as property prices and jeonse deposit prices started to fall.

Apartment prices nationwide fell 1.02 percent on year in November, according to KB Land.

At the top of the top-10 list is an owner owing tenants 64.6 billion won. No. 2 owes 60 billion won in jeonse deposits.

The villa king is No. 8.

Seventy-eight people have been arrested for fraud using the jeonse system, according to Nam Koo-jun, a spokesperson for the National Office of Investigation at the Seoul Metropolitan Police in a press conference on the same day.

Five people have been investigated by the police related to the villa king, with the confirmed damage of 17 billion won so far. They include a building owner and a sales agent.

“Multiple people colluded,” said Nam of the villa king. Regardless of Kim’s death, "collusion is being strictly investigated.”

About 200 contracts related to the villa king have expired or will expire from his death to the end of the year, and HUG provided about 20 billion won in compensation before his death.

Many of the apartments purchased by the villa king are located in Incheon and Hwagok-dong in Gangseo District, western Seoul, according to local media reports.

The Ministry of Land, Infrastructure and Transport announced a task force designed to respond to jeonse fraud starting on Friday.

The task force will be staffed by HUG and the ministry employees.

“There are many cases in which jeonse deposit is people’s entire fortune,” said Won Hee-ryong, minister of land, infrastructure and transport in a press conference Sunday.

BY JIN MIN-JI [jin.minji@joongang.co.kr]