"Jeonse to Wolse" Acceleration? Government Says "Not Many Landlords Can Return Jeonse Deposits"

Passage of Jeonwolse Reporting System in National Assembly... "Completion of Lease 3 Laws"
"Low possibility" despite acceleration of 'Jeonse to Wolse'
Concerns over Jeonse deposit surge in 4 years, but "It will stabilize"

Kim Hyun-mi, Minister of Land, Infrastructure and Transport, is smiling during a briefing on the results of the Housing Supply Expansion Task Force meeting held at the Government Seoul Office on the 4th. (Photo by Yonhap News)

[Asia Economy Reporter Moon Jiwon] The government has systematically refuted concerns that the implementation of the 'Three Lease Laws' would drastically worsen the housing conditions of ordinary citizens by rapidly converting jeonse (long-term deposit lease) into monthly rent.

It explained that landlords must return the deposit to tenants when converting jeonse to monthly rent, which is not easy for many landlords who purchased homes through 'gap investment' (buying a house with jeonse as a deposit).

On the 4th, the Ministry of Land, Infrastructure and Transport stated in a press release, "Today, the National Assembly plenary session passed the amendment to the Real Estate Transaction Reporting Act, which includes the implementation of the Jeonse and Monthly Rent Reporting System," adding, "With this, the Three Lease Laws, which consist of the right to request contract renewal, the cap on rent increases, and the reporting system, have been completed."

It continued, "Previously, contract extensions were made through negotiations between landlords and tenants, but now tenants can live stably for four years if they wish," and "from June next year, with the introduction of the Jeonse and Monthly Rent Reporting System, (tenants) will be able to conclude contracts based on timely market price information."

The Ministry predicted that the implementation of the Three Lease Laws would not suddenly increase the number of properties switching from jeonse to monthly rent.

Considering the high proportion of sales transactions in the Seoul metropolitan area where jeonse deposits are inherited, it is difficult for landlords to return the deposit to tenants in a short period and convert jeonse to monthly rent.

According to the Ministry, the proportion of jeonse deposit inheritance transactions in Seoul was 48.4% in January, 48.3% in February, 48.6% in March, 47.4% in April, and 52.4% in May. In the Gangnam 4 districts (Gangnam, Seocho, Songpa, Gangdong), it was 57.5% in January, 60.3% in February, 61.6% in March, 63.8% in April, and 72.7% in May.

The Ministry stated, "The implementation of the Three Lease Laws does not accelerate the conversion from jeonse to monthly rent."

It analyzed that landlords cannot convert jeonse to monthly rent without the tenant's consent at contract renewal, and even if converted, the rent increase cap will apply, making a sudden increase in monthly rent burdens unlikely.

However, since the proportion of jeonse has been continuously decreasing since 2006 amid a low-interest-rate environment, the trend of 'jeonse → monthly rent' is expected to continue. In the metropolitan area, jeonse accounted for 62.1% in 2006 but fell to 46.3% last year.

The Ministry also refuted concerns that the rent increase cap of 5% does not apply to new contracts, potentially causing a sharp rise in jeonse deposits after 2 to 4 years.

The Ministry emphasized, "Because the Three Lease Laws apply to existing contracts, the jeonse and monthly rent market will remain stable for the next two years," and "it is analyzed that the expiration dates of existing rental housing contracts will be evenly distributed from 2022 to 2024, making a short-term concentration of contract volumes and sudden price surges unlikely."

Especially, with an expected annual supply of more than 50,000 new apartments in Seoul from 2022 onwards, the supply of new housing is sufficient, and the jeonse and monthly rent market is expected to stabilize. The government also announced plans to supply an additional 132,000 households in the Seoul metropolitan area through the introduction of a public reconstruction system and the discovery of new housing sites.

The Ministry stated, "Through the implementation of the Three Lease Laws, we will significantly strengthen tenants' housing rights and do our best to prevent housing instability among low-income, non-homeowners."