Rapid Progress Three Days After Submission to the Legislative Committee
"How to Adjust Deposits and Draft Contracts"
Real Estate Agencies Flooded with Calls Since Morning
Gap Between Landlords and Tenants' Jeonse Prices Expected to Widen Further
[Asia Economy Reporters Inho Yoo, Yuri Kim, Onyu Lim] "We are flooded with calls from landlords and tenants, but it's frustrating because no one knows the proper regulations. Where in the world has a law been enforced like this..." (Authorized agent in Garak-dong, Songpa-gu, Seoul)
First Day of Enforcement of the Two Lease Laws... Market in Panic
On the 31st, the government abruptly enforced the amended Housing Lease Protection Act, which includes the Jeonse and Monthly Rent Cap System and the Right to Request Contract Renewal, known as the 'Two Lease Laws,' throwing the frontline rental market into a state of panic. Landlords, tenants, and even frontline real estate agents are bewildered by the unprecedented enforcement of the law.
On the same day, the government held an extraordinary cabinet meeting at the Government Complex Seoul, chaired by Prime Minister Chung Sye-kyun, to review and approve the amendment to the Housing Lease Protection Act, which introduces the Right to Request Contract Renewal and the Jeonse and Monthly Rent Cap System, part of the three lease laws passed by the National Assembly the day before. The government planned to complete the promulgation process within the day through presidential approval and publication in the official gazette. The law takes effect immediately upon publication in the gazette. The Housing Lease Protection Act was submitted to the Legislative and Judiciary Committee, the relevant standing committee, on the 29th and passed the same day, then cleared the plenary session the day before, and passed the extraordinary cabinet meeting on the 31st, being enforced swiftly within two days of committee submission.
On the same day, the head of real estate agency A in Daechi-dong, Gangnam-gu, Seoul, said, "We are receiving many inquiries from not only landlords but also tenants about the new law enforcement," adding, "Especially landlords are asking for ways to avoid the strengthened tenant protection regulations."
Flood of Inquiries on Deposit Adjustments and Contract Drafting... "Isn't this law just stirring up fights between tenants and landlords?"
In fact, real estate agencies have been inundated with calls since the morning asking about deposit adjustments and contract drafting due to the law's enforcement. Tenants are also frequently asking agents whether they can disregard previously signed lease contracts and adjust the rent within the 5% limit. A representative from real estate agency B near Helio City Apartments in Garak-dong, Songpa-gu, Seoul, said, "We are caught in a difficult position as we receive calls from landlords and tenants whose contracts expire next year," and questioned, "Isn't this law just provoking fights between landlords and tenants?"
The head of real estate agency C near DMC Central I-Park in Seodaemun-gu said, "Many complain that they are frustrated because they have plans to adjust the deposit to market prices and repay loans after the two-year contract ends, but the law is enforced immediately without giving them time to reorganize their plans," adding, "Since there is no other way, the response is to take a long-term view until after two years."
Concerns Over Jeonse Shortage? Already a Reality... "Not a Single Landlord Has Said They Will Raise Only 5%"
Concerns that the full implementation of the three lease laws would worsen the Jeonse shortage and drive up Jeonse prices have already materialized. The market has already started to see upward movements in Jeonse prices. According to the Korea Real Estate Board, the nationwide apartment Jeonse prices in the fifth week of this month increased more than the previous week. Especially, apartment Jeonse prices in Seoul surged significantly. Landlords rushed to raise deposits before the enforcement of the three lease laws, and with stricter occupancy requirements and low interest rates reducing available listings, Jeonse prices have been rising sharply.
According to the Korea Real Estate Board's survey on the 27th, Seoul apartment Jeonse prices rose by 0.14%. This is a larger increase than the previous week's 0.12%, marking the largest weekly rise in over seven months since the survey on January 6 this year. The four Gangnam districts led the rise, including Gangdong-gu (0.28%), Gangnam-gu (0.24%), Seocho-gu (0.18%), and Songpa-gu (0.22%).
For example, the Jeonse price for an 84.8㎡ (exclusive area) unit in Godeok Raemian Hillstate, Godeok-dong, Gangdong-gu, which hovered around 700 million KRW until last month, has now exceeded 800 million KRW. In Gangnam-gu, the Jeonse price for an 84.9㎡ unit in Gaenari Raemian, Yeoksam-dong, was about 1.1 billion KRW in March, traded at 1.25 billion KRW (11th floor) last month, and now there is a Jeonse listing with a deposit of 1.3 billion KRW.
Jeonse prices are also rising noticeably in Seongdong-gu (0.21%), Mapo-gu (0.20%), and Dongjak-gu (0.19%). A representative from a real estate agency in Mapo-gu said, "In a situation where there are hardly any Jeonse listings, landlords are raising deposits by more than 50 million KRW because the three lease laws prohibit raising Jeonse prices for the next four years," adding, "Jeonse prices are expected to rise significantly for some time even after the law's enforcement."
Experts also analyze that the rent cap of 5% under the three lease laws will deepen the gap between landlords' and tenants' desired Jeonse prices in some areas of Seoul amid the rising Jeonse prices.
In particular, Helio City in Garak-dong, Songpa-gu, Seoul, where the Jeonse price ratio was notably low, is seeing a growing gap between landlords' and tenants' desired Jeonse prices. The recent actual transaction price for an 84.98㎡ unit, which was traded at a maximum of 650 million KRW in August 2018, has risen to 900 million KRW, with asking prices reaching up to 980 million KRW. This means a 330 million KRW increase in less than two years. However, landlords can only raise the deposit by a maximum of 32.5 million KRW under the new law. A representative from real estate agency B near Helio City said, "I have not seen a single landlord who said they would raise only 5% when the Jeonse contract is about to expire," adding, "Some landlords have hurriedly sent certified letters stating they signed contracts with third parties, and some tenants are willing to move in forcibly."
It is reported that some tenants are willing to pay more than 5% due to the scarcity of Jeonse in Seoul. A representative from a real estate agency near Helio City said, "Most tenants want to resolve things amicably with landlords," adding, "Tenants are aware of how much the market price has risen recently, so it seems they are negotiating over the phone."
Experts point out the need for the government to prepare follow-up measures as landlords are showing signs of using loopholes and tricks to avoid strengthened tenant protections. Landlords may evict existing tenants by offering compensation and then raise rents for new tenants accordingly. The 5% increase limit applies only to existing contracts and not to new contracts, which ultimately increases the burden on new tenants.
Also, landlords who are blocked from raising rents might strictly enforce housing restoration standards and impose compensation for damages, creating conditions for forced eviction.
Meanwhile, Kim Tae-nyeon, floor leader of the Democratic Party of Korea, held a supreme council meeting on the same day and stated, "The passage of the Housing Lease Protection Act amendment is a great achievement to ensure stability for ordinary people," adding, "We will firmly respond to disruptive acts by mobilizing all policy means and capabilities."
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