‘Monthly rent for villas and jeonse for apartments’ become trend in Korea’s housing market

A cluster of villas in Yongsan-gu, Seoul. Taehyung Cho Reporter

“Monthly rent for villas and jeonse for apartments” is becoming a mainstream trend in Korea’s housing market. The proportion of Monthly rent for villas has reached a record high in the wake of the jeonse scam. As for apartments, rental prices have been on the rise for more than half a year as the sluggish sales market and falling market interest rates, which increased the demand for jeonse.

According to statistics released by the Ministry of Land, Infrastructure, and Transport on April 3, the proportion of monthly rent in the total transaction volume of houses other than apartments was 70.7 percent this year. In the past five years, the average ratio of jeonse and monthly rent (51.8 percent) was similar, but now monthly rent accounts for 7 out of 10 cases.

In other areas excluding the Seoul Metropolitan area, the proportion of monthly rent exceeded 70 percent last year, rising to 77.5 percent this year. The trend of monthly rent for villas has been driven by concerns over the loss of deposits following the large-scale rental scam that erupted in late 2022. The fact that the Housing and Urban Guarantee Corporation (HUG) strengthened the requirement to subscribe to the lease deposit return guarantee also affected the supply side. Since May last year, HUG has lowered its subscription requirement from 150 percent of the deposit to 126 percent of deposits.

Accordingly, two out of three villas in the Seoul metropolitan area that have to renew their lease contracts this year should lower their deposits, according to an analysis. Landlords will have to lower the deposit or change their contract to half-jeonse in order to maintain or receive more rent.

"Villas don't have as many transactions as apartments, so market price inquiries are limited, and it's hard to know if you have priority over your deposit," adding, "It is the survival instinct of tenants who want to avoid jeonse fraud,” said Park Won-gap, a senior real estate researcher at KB Kookmin Bank.

Apartments, on the other hand, have seen an increase in jeonse prices and a decrease in the proportion of monthly rent. According to the data of the Korea Real Estate Agency's weekly apartment price trend, the country’s apartment jeonse price index rose 0.02 percent in the fourth week of last month (as of March 25), jumping for 36 consecutive weeks. Provincial areas fell 0.04 percent, falling for 11 consecutive weeks, but the Seoul metropolitan area (0.07 percent), including Seoul (0.07 percent), Incheon (0.17 percent), and Gyeonggi (0.05 percent) led the increase. Seoul has been on the rise for 45 weeks, and the Seoul metropolitan area has been on the rise for 41 weeks.

Monthly rents accounted for 42.2 percent of all apartment transactions nationwide this year as of February. This is still higher than in 2022 (38.8 percent) but lower than last year (43.9 percent). Notably, Seoul (41.6 percent) recovered to the level of two years ago (41.2 percent). Experts say apartment prices, which soared in 2020 and 2021, are still high because they have not fallen enough, and market interest rates are falling after reflecting expectations for a cut in advance amid sluggish sales due to strengthened loan regulations such as the debt-to-income ratio (DSR) for each borrower.

The average interest rate on jeonse loans by the four major banks (KB Kookmin, Shinhan, Hana, and Woori) soared to the mid-7 percent range in November 2022, recording between 5.18 and 7.45 percent per annum, but fell by up to 3.66 percentage points to between 3.79 and 4.64 percent per annum in February this year.

Kim Hak-ryeol, head of the Smart Tube Real Estate Research Institute, said, "Apartments have traditionally been in higher demand for jeonse than monthly rent. Monthly rent increased as loan interest became more expensive during the surge in interest rates in 2022, but the trend is changing and jenose is again becoming a more popular trend for apartment transactions due to lower interest rates.”

Kim In-man, head of the Real Estate Research Institute, said, "Villas have a higher jeonse price rate (ratio of sales price to jeonse price) than apartments, so there is a greater risk of jeonse contracts where the sales price is lower than the jeonse deposit. The trend of monthly rent for villas and jeonse for apartments is continuing as people are choosing between paying interest to banks and paying rent to landlords every month."

※This article has undergone review by a professional translator after being translated by an AI translation tool.