Korea faces growing need for measures to resolve housing rental scam

Villas in Seoul [Photo by Kim Yoo-sin]

South Korea’s nationwide housing fraud has led to a collapse in the villa rental market as more tenants are rushing to end their contract early in fear of losing their security deposits from insolvent landlords and some industry insiders warn that this could spread to the broader housing market, including apartments.

The government, however, has failed to come up with proper measures amid growing conflicts between landlords and tenants over the return of jeonse deposits. Jeonse is a housing rental system in Korea where instead of paying monthly installments to a landlord, a large lump-sum is deposited for the duration of the contract.

“We are mulling a slew of measures to respond to the crisis, which is expected to exacerbate in the second half of this year,” said Won Hee-ryong, Minister of Land, Infrastructure and Transport. Some experts said that the special legislation implemented by the government last month to compensate for some of the victims wasn’t enough to address the root culprit of the latest crisis.

The government’s indolence in solving the crisis has resulted in a more rapid decline in jeonse tenancy, especially for villas, small-sized residential buildings that are cheaper than apartment complexes. According to housing data released by the city of Seoul, jeonse contracts for villas in Seoul stood at 16,203 between January and March, down 30 percent from 22,881 contracts a year ago.

The problem is that the jeonse crisis will likely exacerbate in the second half, putting more strains on the villa market. “Jeonse value of apartments, though seen as a safer option than villas for tenants, was at the highest two years ago, which suggests that apartment tenants have an increased risk of losing deposits,” said Seo Jin-hyung, a professor at Kyung-In Women’s University.