Rent demand to challenge Korean banks in keeping household debt in check

[Photo by Han Joo-hyung]

The share of leveraged long-term housing lease in household loans surged to more than 40 percent last year amid soaring rent prices due to shortage from jump in housing value and taxation in South Korea, adding to ballooning household debt.

According to the Financial Supervisory Service on Monday, bank loans to finance jeonse – Korea’s unique rent system that requires lump-sum deposit for leasing for minimum two years – totaled 29.5 trillion won ($245 billion), down from the previous year's 33.7 trillion won.

But the share against total household debt of 71.6 trillion won at banks rose to 41.2 percent last year from 33.5 percent in 2020.

Lending for jeonse has been on the rise despite containment in mortgage loans for new purchases.

Annual gains in loans for jeonse that stayed around 1 trillion won until 2017 widened to 2 trillion won in 2018 and hit 3.7 trillion won in 2020. They were reduced to 1.7 trillion won as of November in line with regulations on household debt.

Rent demand is expected to influence banks under watch to keep household debt increase in check this year.

[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]