[Editorial] Destructive rental fraud

Drastic measures needed to help victims of massive ‘jeonse’ scam, fix loopholes

In a country where tenants often pay a large lump-sum deposit for two years of rent under the unique “jeonse” housing system, landlords’ failure to pay back the deposits in time -- a result of either reckless borrowing or a shameless scam -- can be utterly devastating for cash-strapped tenants, often wiping out the entirety of their assets.

A massive fraud case is now shaking up the jeonse lease system and sending shock waves through the nation, with thousands of innocent tenants unable to reclaim their deposits. Tragically, a third victim of the large-scale jeonse fraud case died Monday in an apparent suicide after failing to get back her deposit as her rented apartment in Michuhol-gu, Incheon, was put up for auction in June last year.

Two other victims took their own life on Feb. 28 and April 14, respectively, in connection with the unprecedented scam in Michuhol-gu. The landlord behind the scam was arrested in February. He is alleged to have failed to pay back a combined 12.5 billion won ($9.48 million) in deposits that he collected from tenants living in 161 apartment units in Michuhol-gu.

As the landlord -- dubbed the “Michuhol-gu housing king” -- is reported to own around 2,700 apartment units in the area, the total number of fraud victims could go up, while other rental scams are reported across the nation.

Due to the huge impact, the jeonse swindle case is now turning into a serious social issue that could erode public trust in the housing rental system. The government is urged to take action to contain the fallout of the scam and help the victims with their rented apartments set to be auctioned off -- a worst-case scenario that would leave tenants unable to reclaim their deposits.

On Tuesday, President Yoon Suk Yeol said it is “regrettable” to see additional victims of the scam and approved Land Minister Won Hee-ryong’s proposal to postpone or suspend the scheduled auction dates for the housing units related to the scam.

“Check whether the government’s measures are working and take proactive steps for blind spots, as many of the victims of the rental scam may not know about support measures,” Yoon said. “(The government) should set up a proper support service system, actively paying visits to help out the victims.”

But it is difficult to say that the president’s instruction about the scam and victims is timely and effective enough to defuse the explosive developments that are leaving one tenant after another in despair.

The government has so far produced 22 measures addressing the massive scam on four occasions, but there is no sign of such trouble abating. After all, many of the measures, including financial support, are limited in their effect. The decision to halt auctions of the affected apartment units must come earlier.

The Michuhol-gu scam must be treated with special attention by authorities and the utmost efforts should be made to help victims weather the make-or-break crisis. The stakes cannot be higher, as the fraud case has the potential to destabilize the country’s decades-old jeonse system in which tenants pay a large lump-sum deposit to the landlord and gets back the money at the end of the lease contract, during which tenants do not pay monthly rent -- a system favored by tenants and landlords alike.

The jeonse system works well when the real estate market is booming. Property-investors favor the system as they can buy properties with tenants by paying the “gap” between the market value and the deposits. But things go awry when the market falls into a slump and interest rates go up, as more landlords fail to pay back deposits for various reasons and more tenants find it burdensome to shoulder higher borrowing costs.

In addition to the inherent vulnerability of the system, the number of large-scale rental scams has gone up around the country in recent years, especially concerning swindler landlords who disappear with the deposits. Such scams dent the assets of a number of victims -- to the point of being labeled a “social disaster.”

Loans extended to jeonse tenants with favorable conditions -- originally a policy intended to support housing for the people -- are now blamed for a bubble in the real estate market that is bursting with a vengeance.

The government must ratchet up rescue efforts for the victims of the scam and come up with long-term policies aimed at fixing the loopholes of the jeonse system easily exploited by shameless swindlers.

By Korea Herald(khnews@heraldcorp.com)