Over 280 people arrested for dodgy rental practices

Over 280 people have been arrested amid a wide scale government crackdown on fraudulent rental practices that have emerged as a hit-button social issue in recent weeks, a government task force announced as part of its preliminary report on Thursday.

Yoon Seung-young, chief of the National Police Agency's investigation bureau, announces the findings of the government's joint task force probe into rental deposit fraud at the Central Government Complex in Jongno District, central Seoul on Thursday. [NEWS1]

Over 280 people have been arrested amid a wide-scale government crackdown on fraudulent rental practices that have emerged as a hot-button social issue in recent weeks, a government task force announced as part of its preliminary report on Thursday.

Speaking at a joint briefing by the Land Ministry, National Police Agency (NPA) and the Supreme Prosecutors’ Office, Yoon Seung-young, chief of the NPA’s investigation bureau, said that a total of 2,895 people had been booked on various charges related to abuses of the country’s jeonse system, while 288 suspects have been detained.

Jeonse refers to a system in which a tenant pays a very large refundable deposit upfront in return for rent-free or reduced-rent occupancy for a fixed period, while also usually forgoing the interest that would accrue on the amount if it had been left in a bank account.

When landlords failed to repay the debts they incurred to buy the homes, the residences were auctioned off, resulting in the tenants facing eviction without receiving their deposits.

“People from 31 organizations have been rounded up nationwide during this investigation, including 21 crime rings that stole a total of approximately 78.8 billion won ($60.3 million) through fraudulent jeonse contracts and 10 groups that together own 13,000 residences purchased through gap investment,” said Yoon.

Gap investment refers to the practice of buying a home when there is little difference between the purchase price and the long-term jeonse deposit amount, essentially enabling the buyer to purchase the house with someone else’s money.

In such cases, the jeonse deposit serves as a kind of interest-free loan from the tenant to the homeowner.

Gap investment became popular during the Moon Jae-in administration when rising home prices allowed buyers to make substantial profits through the practice.

According to Yoon, 1,471 of those booked over the course of the 10-month-long joint investigation were people suspected of misusing loans from financial institutions reserved for would-be jeonse tenants, employing fraudulent rental insurance, or inflating the appraisal value of their homes, while 514 were charged with systematically abusing jeonse deposits for gap investment purposes.

Victims of the various rental fraud schemes numbered 2,995, while total damages were calculated at 459.9 billion won.

Approximately a third of the victims said they lost between 100 and 200 million won, while another third said they suffered damages between 50 million and 100 million won.

Some 14.1 percent of rental fraud victims said they lost between 200 and 300 million won.

Multi-unit residences, often known as villas, accounted for 57.2 percent of residences employed in the schemes, while studio apartments, also known as officetels, comprised 26.2 percent, according to the joint task force’s findings.

The area with the greatest concentration of jeonse fraud cases was Gangseo District in western Seoul, where tenants reported 83.3 billion won in lost deposits, followed by Hwaseong, Gyeonggi, and Incheon’s Bupyeong District, which respectively counted 23.8 billion won and 21.1 billion won in lost deposits.

BY MICHAEL LEE [lee.junhyuk@joongang.co.kr]