Jeonse demand rises in Korea on expensive monthly rents

This photo shows the view of Heukseok Xi, whose exclusive area of 84㎡ was recently traded at 800 million won, up 200 million won from the beginning of the year. [Photo provided by GS E&C]

Demand for jeonse, South Korea’s unique housing rental system where a large lump-sum payment is deposited usually for the duration of two years, is rising after a brief slump as loan interest and supply go down.

According to an analysis conducted by Maeil Business Newspaper on the transaction price data of the Ministry of Land, Infrastructure, and Transport on Thursday, jeonse transactions accounted for 59.2 percent of the entire housing rental transactions in Seoul in June, up 1.2 percentage points from 58 percent in the previous month.

Until the beginning of this year, jeonse in Seoul accounted for 55 percent of the entire transactions but it has been increasing recently. The change comes as tenants are finding it cheaper to go with jeonse as the monthly rent has increased.

According to the Korea Real Estate Board (REB), the Seoul apartment rental conversion rate was 4.8 percent as of May. A rental conversion rate refers to the rate at which a jeonse deposit is converted into monthly rent. It is up 0.4 percentage point from 4.4 percent at the end of last year. A rise in the rental conversion rate means that monthly rents are becoming more expensive.

The interest rates for jeonse loans at commercial banks during the same period, in the meantime, stood at between 3.5 and 4.3 percent, according to the Korea Housing Finance Corporation. Analysts note that the demand for jeonse is rebounding as jeonse loan rates are cheaper than monthly rents.

The number of jeonse properties available is also on a decline.

According to real estate big data company Asil, there were 32,721 jeonse apartment rentals in Seoul as of Thursday, down about 40 percent from the beginning of the year.

Jeonse prices are on a rise as the number of rental properties fall and demand increases.

According to REB’s weekly price trend survey on Thursday, the price of apartment jeonse rentals in Seoul rose 0.07 percent in the third week of July. The increase was 0.02 percentage points higher than 0.05 percent in the previous week.

“Jeonse demand has remained steady even as the volume of sales transactions has remained below the annual average,” said Park Hap-soo, an adjunct professor at Konkuk University’s Graduate School of Real Estate Studies.

Sales prices nationwide rose 0.02 percent week over week for the first time since January last year.

Yet, it remains to be seen whether the trend will continue as a large-scale supply from new apartment complexes will take place in the Gangnam area by the end of this year.