Monthly, even weekly, rent gains in Korea as jeonse loses luster

Economy

Published: 16 Jan. 2023, 18:59 Updated: 02 Feb. 2023, 14:38

Monthly, even weekly, rent gains in Korea as jeonse loses luster

The volume of monthly rents hit an all-time high of 42.5 percent of the total number residential rent contracts in Seoul apartment complexes in 2022 since Seoul Metropolitan Government began compiling the data in 2010. [YONHAP]

Apartment leases are changing dramatically in Korea as tenants become more cautious in the high interest rate environment and with the economy slowing.

Most threatened is jeonse, whereby a very large refundable deposit is paid up front for rent-free occupancy for a fixed period. The almost uniquely Korea practice is being eclipsed by part-jeonse, part-monthly contracts, monthly rent and weekly rents.

One tenant and his family rented an apartment in complex situated in Dongjak District, southern Seoul, for a deposit of 100 million won ($80,963) and monthly rent of 2.3 million won as of last month.

In August 2022, the deposit for units in the complex was 700 million won, but the demand has been all but dissolved since then.

“Escalating interest rates and big payments for large loans led us to choose to pay monthly rent instead of jeonse,” the tenant said.

The case isn’t unusual. In 2022, 258,429 jeonse deals were signed, a fall of 7.78 percent. The total was 57.5 percent of all residential rent contracts, according to Seoul Metropolitan Government. Compared to 2020, the volume decreased 11.1 percentage points.

The proportion of monthly rents hit an all-time high of 42.5 percent, or 191,013, for 2022.

People are willing to pay high monthly rents, even more than 1 million won a month. The volume of monthly rent increased to 80,812 last year, a 236.5 percent increase compared to 2017’s 24,015.

Due to the economic situation, another system is quickly spreading across the market, where tenants pay weekly rents instead of massive deposits. At Gangnam District, southern Seoul, an officetel (a building used for both commercial and residential purposes in Korea) for a weekly rent of 450,000 won recently came out on the market.

“For people like me who’s just starting out on their career, it’s more advantageous for us to pay weekly rents in an era of high interest rates,” said 31-year-old Yoon Jeong-hyun.

Tenants are also renewing their rent contracts by lowering their deposits. The percent of tenants living in Seoul lower their deposits hit 13.1 percent during the fourth quarter last year, from 4.6 percent in the third quarter last year, according to survey from real estate service Ziptoss.

“More leaseholders feel burdened to pay the high interest rates of the loan which they borrowed to pay back their tenant’s deposits — which is why cases where both parties agree to reduce the deposit are increasing.”

Fearful that leaseholders will not be able to give their deposit back, tenants are becoming more picky when making their rent contracts.

A 53-year-old owner received a call from his real estate agent that a hopeful tenant wanted “proof” of his finance situation.

“The tenant asked me to send a certificate of employment and another one confirming that I’ve paid all my taxes,” the landlord said, adding that he successfully signed the contract with the tenant. “It was a bit discomforting because I felt I was being tested. But I abided by the requests because I’ve already lowered the deposit multiple times and it still took about four months for a hopeful tenant to appear.”

The situation has been completely reversed compared to some two years ago. Back then, owners had all the power.

“In the long term, jeonse is on the danger of disappearing altogether from the real estate market,” said Park Won-kab, who leads the real estate team at KB Kookmin bank. “It’s no longer an era where owners rule over the market — instead the ball is the tenants’ court, and the rent system is quickly becoming popular on the market of high interest rates.”

“It’s highly probable that interest rates will not be lowered — the rates may even continue to climb — and since jeonse rates have already crossed a certain threshold, deposits will not go down as well,” said real estate analyst Kim In-man. “In the long run, let’s say a decade from now on, jeonse demand is likely to fall.”

Other believe jeonse will exist beyond this current blip.

“Monthly rents are on the rise, and when interest rates do fall, jeonse may become more advantageous again,” said Professor Kwon Dae-jung, a professor of real estate studies at Myongji University. “A still-prevalent recognition exists under the market that jeonse system builds the foundation for people to save up so that they can buy their own home.”

BY LEE CHANG-KYUN, LEE JAE-LIM [lee.jaelim@joongang.co.kr]