Seoul Metropolitan Area Jeonse Market: Inventory Shortage and Even Kkangtong Jeonse

[Asia Economy Reporter Yoo In-ho] The jeonse market in the Seoul metropolitan area, including Seoul and Gyeonggi Province, is showing unusual signs. Not only is there a phenomenon of listings being locked up amid rising jeonse prices in Seoul, but in the metropolitan area, some listings have jeonse prices surpassing sale prices, raising concerns about "empty jeonse" (Kkangtong Jeonse).

According to the weekly apartment jeonse price trend for the second week of September by the Korea Real Estate Agency on the 19th, Seoul apartment jeonse prices have been rising for 64 consecutive weeks since July last year. Seoul has shown a 0.09% increase for three consecutive weeks recently.

In fact, jeonse prices rose in almost all autonomous districts, including Mapo-gu (0.11%), Seongbuk-gu (0.11%), Seongdong-gu (0.10%), Yongsan-gu (0.09%), and Jungnang-gu (0.09%). Especially, Gangdong-gu (0.13%), Songpa-gu (0.12%), and Gangnam-gu (0.12%) have seen steady price increases mainly in neighborhoods with good locations and school districts.

Apartment jeonse prices in Gyeonggi Province also recorded a 0.21% increase, the same as last week. Areas with high increases included Hanam-si (0.34%) and Paldal-gu in Suwon (0.32%), where jeonse demand is gathering ahead of next year's pre-sale. In Sejong, jeonse prices showed a significant rise from 0.87% last week to 2.15%.

The Korea Real Estate Agency explained, "Amid the effects of the Jeonse and monthly rent cap system, the right to request contract renewal, strengthened residency requirements, and the autumn moving season, prices rose mainly in areas with relocation demand due to redevelopment projects or good residential conditions such as transportation."

The problem is that jeonse supply is rapidly decreasing. In fact, after the implementation of the new Housing Lease Protection Act, including the Jeonse and monthly rent cap system and the right to request contract renewal, Seoul apartment jeonse listings have decreased by more than half.

According to the real estate big data company Asil, as of mid-September, the total number of Seoul apartment jeonse listings was 13,561, down about 64.7% compared to 38,427 listings on July 31, when the new lease protection law was enacted.

For example, Helio City in Garak-dong, Songpa-gu, Seoul, with 9,510 households, had only about 10 jeonse listings. The largest complex in Eunpyeong-gu, Seoul, ‘Nokbeon Station e-Pyeonhansesang Castle’ with 2,441 households, had 14 jeonse listings. Seongsan Sijeong Apartment in Mapo-gu, Seoul, with 3,710 households, had only one jeonse listing.

The decrease in Seoul apartment jeonse listings is expected to worsen further. According to the Korea Real Estate Agency, the Seoul apartment jeonse supply-demand index has been rising continuously in the second half of this year. The index, which averaged 109.0 in June, soared to 117.5 in August. A jeonse supply-demand index above 100 indicates a shortage of supply. With the autumn moving season approaching, jeonse demand for apartments is likely to increase further.

Additionally, in the officetel market in Seoul and the metropolitan area, cases of 'empty officetels' where jeonse prices exceed sale prices are emerging rapidly.

Due to the amendment of the lease law, jeonse listings have become scarce, causing jeonse prices to rise. Meanwhile, acquisition tax surcharges and weakening buying demand, along with an increase in listings from multi-homeowners and rental business operators liquidating properties, have caused sale prices to fall.

When a jeonse becomes "empty," even if auctioned, tenants may not be able to recover their jeonse deposits, so caution is required.

In fact, many "empty listings" where sale prices are lower than jeonse prices have appeared mainly in areas with dense officetels such as Gangnam-gu, Gwanak-gu, and Yeongdeungpo-gu in Seoul.

For example, in Sillim Cube in Sillim-dong, Gwanak-gu, a 16㎡ unit has a sale asking price of 105 million to 120 million KRW, while the jeonse price is 130 million to 140 million KRW. The jeonse price is up to 35 million KRW higher than the sale price.

In Dangsan-dong, Yeongdeungpo-gu, a 20㎡ unit in Riverview has a sale price of 140 million to 145 million KRW, but the jeonse price is 150 million to 160 million KRW, exceeding the sale price. In Yeoksam-dong, Gangnam-gu, a 23㎡ unit in Gangnam Yeoksuhee Starhills has a jeonse price of 200 million KRW, while the sale price is about 177 million KRW.