Seoul housing market shifts towards monthly rent as lease fraud grows

Monthly rent advertisements are posted on a window at a real estate in Seoul on the afternoon of June 21. [Photo by Yonhap]

Seoul’s real estate market is experiencing a significant shift towards monthly rental contracts on a growing number of reports of fraudulent lease scams since late last year, indicating a fundamental distrust in the jeonse system, which has been favored by many Korean tenants despite requiring lump-sum deposits for housing leases.

According to a recent analysis on the Seoul’s housing rental transactions in the first five months this year based on the city’s official data by a local real estate data tracker, Gyeongjeman Lab, the number of monthly rental transactions were 117,176 out of the total 297,788 transactions for Seoul housing of all types - including apartments, villas, single houses and multi-unit houses - accounting for 51 percent of all rental transactions. The share of monthly rental transactions exceeding 50 percent is seen for the first time since the Seoul city government began providing relevant statistics in 2011.

The increase in the monthly rental transactions was led by transactions in single and multi-unit houses. During the first five months this year, the share of monthly rental transactions for single and multi-unit houses among the total housing rental transactions was a record 72.6 percent. The share for villas was also an all-time high of 46.2 percent.

While monthly rental transactions for apartment units are smaller compared to those for houses and villas, they account for a higher share compared with earlier years. Over the same period, monthly rentals for apartment units accounted for 41.3 percent of the total housing rental transactions, which is similar to last year’s record 41.6 percent.

In particular, the butterfly effect of the jeonse scams, which have been most common in villa transactions, has contributed to the increased share of small-sized apartment units that are believed to be alternatives for villas. During the same period, monthly rental transactions for 60 square-meter or smaller apartment units accounted for 49.9 percent of the entire rental transactions for apartment units.

Experts forecast that this trend of avoiding jeonse contracts will continue for the time being. “It is noteworthy that the recent trend of preferring monthly rentals to jeonse deals is driven by tenants,” said Park Won-gap, a senior real estate analyst at Kookmin Bank said.

“In the past, landlords often preferred monthly rentals because they couldn’t expect much returns with lump-sum deposits anyway due to low interest rates and due to the burden of property tax. Nowadays, however, tenants are opting to pay monthly rents instead of paying risky lump-sum deposits, driven by their instinctive sense of protection,” Park said, adding that fundamental distrust in the jeonse system would accelerate the increase of monthly rental transactions for houses and villas.