More than 60 percent of villas in metropolitan areas not to be covered by a security deposit return guarantee

A view of a housing complex in downtown Seoul. Reporter Jae-won Moon

Two out of three villas in the Seoul metropolitan area whose Jeonse contracts expire this year will find it difficult to sign up for a rental deposit return guarantee unless they lower their security deposit.

This comes as the Korea Housing and Urban Guarantee Corporation (HUG) has tightened the criteria for signing up for a rental deposit return guarantee.

On the 2nd, real estate brokerage firm Ziptos announced the results of analyzing 122,087 villas (row house and multi-family units) in Seoul, Gyeonggi Province, and Incheon whose Jeonse contracts expire using the Ministry of Land, Infrastructure, and Transport's real transaction price inquiry system. According to the results, 66 percent of them are not eligible for the HUG's rental deposit return guarantee, which costs the tenant the same amount of money if they keep the same rental price.

HUG recognizes that high levels of rental deposit return are being used in rental scams and has significantly tightened the criteria for enrollment. In May of last year, HUG lowered the ratio of return guarantee coverage from 100 percent to 90 percent for new Jeonse contracts, and from this year, the company will apply the same standard to renewals. The intention is to prevent "capital-free gap investment" by rejecting homes with a deposit of more than 90 percent of the house price.

By region, 63 percent of all expiring villas in Seoul, 66 percent in Gyeonggi Province, and 86 percent in Incheon were unable to sign up for the return guarantee with the existing deposit.
In Seoul, Geumcheon-gu (87 percent) had the highest rate of unavailability.

In Incheon, Gyeyang-gu (92 percent) and in Gyeonggi Province, Icheon-si (87 percent) were the highest. Gangseo-gu, Seoul, and Michuhol-gu, Incheon, which had a high number of charter scam victims, had 85 percent and 75 percent, respectively. On the other hand, Yongsan-gu (11 percent), Seongdong-gu (29 percent), Gangnam-gu (43 percent), and Seocho-gu (44 percent) in Seoul, Dongan-gu (16 percent) in Anyang-si, Gyeonggi Province, Bundang-gu (21 percent) in Seongnam-si, and Jungwon-gu (36 percent) in Gyeonggi Province had relatively low rates of unavailability. Even for the same villa Jeonse, there is a large regional variation.

The transaction cold wave in the villa Jeonse market is likely to continue for the foreseeable future. This is because landlords need to come up with at least a few hundred to a few thousand won in cash to lower the deposit to meet the stricter guarantee criteria and send out existing tenants.

For example, A Villa in Yonghyun-dong, Michuhol-gu, Incheon, signed a Jeonse contract on February 26, 2022, with a deposit of 193 million won. HUG sees the price of a villa as 140 percent of the public price (144 million won), which is 216 million won.

This means that in the future, if the tenant of A Villa wants to sign up for HUG's rental deposit guarantee insurance, the deposit will have to be lowered to 90 percent of the house price, or 181.4 million won. In this case, the landlord would have to come up with 11.56 million won in cash and give it to the existing tenant.

※This article has undergone review by a professional translator after being translated by an AI translation tool.