"Jeonse Crisis Due to Low Interest Rates, Not the Three Lease Laws"… Ministry of Land, Infrastructure and Transport's Firm Rebuttal

"Time for All Sectors of Society to Unite Wisdom"
"Stoking Anxiety Does Not Help"

[Asia Economy Reporter Moon Jiwon] The Ministry of Land, Infrastructure and Transport clarified on the 19th that the claims that the 'Lease 3 Act' has caused a decrease in jeonse supply and a sharp rise in deposit amounts are not true. It emphasized that the recent surge in jeonse prices is due to the Bank of Korea's base interest rate cuts, not the government's real estate policies.

In a statement released that day, the Ministry explained that there is no direct causal relationship between the implementation of the Lease Act, including the Jeonse and Monthly Rent Cap System and the Right to Request Contract Renewal, and the trend of shifting from jeonse to monthly rent.

There has been no significant change in the proportion of jeonse and monthly rent before and after the implementation of the Lease 3 Act, and the levels have remained similar compared to the previous year.

The Ministry stated, "With the implementation of the Lease 3 Act, landlords cannot unilaterally convert existing contracts to monthly rent without the tenant's consent during renewal," and emphasized, "Even if conversion occurs, the statutory conversion rate of 2.5% applies, and increases in deposit and monthly rent are limited to within 5%."

Although there is some incentive to switch to monthly rent due to the continuous interest rate cuts lowering the real returns for jeonse landlords, this is unrelated to the Lease 3 Act.

Minister of Land, Infrastructure and Transport Kim Hyun-mi is reporting on duties at the National Assembly Land, Infrastructure and Transport Committee's audit of the Ministry of Land, Infrastructure and Transport, the Administrative City Construction Agency, and the Saemangeum Development Agency held on the morning of the 16th at the Government Complex Sejong in Sejong City. (Photo by Yonhap News)

The Ministry explained that disputes caused by the Lease 3 Act are also on a declining trend.

While acknowledging that "some transitional confusion and inconvenience were inevitable until new transaction practices were established following the introduction of the Lease 3 Act," it added, "the number of dispute-related complaint consultations has significantly decreased compared to the early days of the system's introduction and is expected to decline further."

According to the Ministry, complaints filed through the 'People's Petition' increased from 97 cases in the 4th week of July, when the Lease 3 Act was introduced, to 494 cases in the 3rd week of September, but then slightly decreased to 122 cases by the 3rd week of October.

The Ministry stated, "The right to request contract renewal is a common system in major advanced countries," adding, "Countries such as Germany, France, New York in the United States, and Japan operate indefinite lease contracts or contract renewal rights."

In particular, the Ministry emphasized that the volume of jeonse transactions has not decreased compared to previous years.

Although the 'Seoul Real Estate Plaza' showed a slight decrease in jeonse and monthly rent transactions last month, this data is based on contracts reported through confirmed dates and is not the final confirmed figure.

For example, if tenant A signs a jeonse contract in September and reports the confirmed date in November, this jeonse contract will be reflected in November and finalized in the December statistics.

The Ministry expressed regret over repeated distortions of this data as evidence despite multiple warnings about the statistical interpretation, explaining, "For reference, the number of jeonse and monthly rent transactions in Seoul in August (based on reports) was 54,000, which is 6.8% higher than the same month last year."

Photo by Hyunmin Kim kimhyun81@

The Ministry pointed out that the recent 'jeonse crisis' is due to the base interest rate cuts, not the Lease 3 Act.

The Ministry stated, "When interest rates fall, tenants' actual burden of jeonse deposits decreases, increasing jeonse demand, while landlords' real returns decline, creating incentives to raise deposits."

It added, "It is time for the government, academia, industry, and opinion leaders to come together to minimize social side effects caused by some asset price increases," and criticized, "Stirring up anxiety with unverified supply contraction theories benefits no one."