3 Months Since New Lease Protection Law Enacted
Jeonse Crisis Deepens, Monthly Rent Shift Accelerates
New Trends Emerge Including Moving Fees, Viewing Fees, Success Fees, and Consolation Payments
"Tenant Housing Stability Appears Improved, but Unexpected Social Costs Arise"
[Asia Economy Reporter Onyu Lim] Mr. A, a man in his 40s who owns an apartment in Gaebong-dong, Guro-gu, Seoul, decided to give his tenant a consolation payment of 5 million won in exchange for vacating the house next spring. Although the tenant's right to request contract renewal is not recognized when the landlord intends to reside in the property, the tenant in his 70s stubbornly insisted, "The law has changed, so I can live for two more years." Mr. A said, "If even young people are confused by the law, I can only imagine how much more so the elderly are," adding, "I thought it was not worth going to legal disputes, so I decided to give the consolation money."
Three months after the new Housing Lease Protection Act, including the right to request contract renewal and the rent ceiling system for jeonse and monthly rent, came into effect, unprecedented phenomena are occurring in the jeonse and monthly rent market. Amid shortages of listings and soaring prices, landlords and tenants are creating various new customs in the process of resolving conflicts. Providing moving expenses to persuade tenants to leave has become common, and among real estate agents, competition for success fees is emerging due to the jeonse shortage. Properties with tenants are being avoided by buyers, resulting in prices more than 10 million won lower than general listings. On the surface, tenants are guaranteed residential stability for at least four years, but concerns are raised about significant social costs incurred.
◆The Emergence of ○○ Fees and △△ Payments
According to 330 frontline real estate agencies, since the new lease law was enacted at the end of July, various additional costs such as moving expenses, house viewing fees, success fees, and consolation payments have arisen during jeonse and monthly rent transactions. Moving expenses are a representative example. These costs arise as tenants demand from landlords anywhere from several million to tens of millions of won on the condition that they do not exercise their right to request contract renewal. It is reported that Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, was only able to sell his apartment in Uiwang, Gyeonggi Province, after giving a consolation payment to the tenant on the condition of not exercising the contract renewal right. Especially, those who urgently need to dispose of their homes, such as temporary two-homeowners, have no choice but to accept such proposals reluctantly.
Due to the jeonse shortage, there have been cases where tenants demand a 'house viewing fee' of 50,000 won from prospective new tenants under the pretext of COVID-19 quarantine measures.
Tenants also face increased burdens. As jeonse listings dry up, tenants may have to pay real estate agents a 'success fee' in addition to brokerage commissions for finding a house. Mr. C, who is looking for a new jeonse house in Mok-dong, Yangcheon-gu, Seoul, said, "It seems almost impossible to find listings nearby, so I promised the agency to give an additional success fee on top of the brokerage commission."
◆"You know the law changed, right?" VS "We interview tenants"
In this process, landlords and tenants are being pushed into a potential conflict relationship. According to the Korea Legal Aid Corporation, the number of consultations received by the Housing Lease Dispute Mediation Committee from August to mid-September totaled 14,830 cases, nearly a 60% increase compared to 8,614 cases during the same period last year. To prepare for eviction lawsuits, it has become essential for landlords and tenants to prove whose rights take precedence through certified mail and recorded phone calls. Recently, it is easy to find guides on how to write and send certified mail on real estate-related internet cafes.
As a self-help measure, landlords have started interviewing tenants. They request income and employment certificates and ask questions about pets and children. Mr. D, who rented out an apartment in Dasan-dong, Namyangju, Gyeonggi Province, said, "When looking for new tenants in the future, I will carefully check whether they seem likely to keep the house clean and behave reasonably at the end of the contract."
◆Jeonse-Occupied Properties Become Unpopular
As the possibility of conflicts with tenants increases, properties with jeonse tenants, once popular for gap investment, have become unpopular in the apartment sales market. Properties with tenants cannot freely raise jeonse prices, and if the tenant exercises the right to request contract renewal, the new landlord's move-in schedule is disrupted.
In fact, in Seoul, it is easy to find jeonse-occupied properties priced more than 10 million won lower than owner-occupied listings. For example, in Ahyeon-dong, Mapo-gu, the Mapo Raemian Prugio 84㎡ (exclusive area) listings available for immediate move-in are priced in the 1.8 billion won range, while jeonse-occupied properties are listed as urgent sales at 1.55 billion to 1.6 billion won, more than 100 million won lower. A representative from E Real Estate Agency in Ahyeon-dong explained, "There are houses that have been on the market for over a month despite being well maintained because they have jeonse tenants. If the ownership transfer is not completed six months before the contract expires, the new owner cannot move in, so even for gap investment, buyers look only for properties with more than six months left on the contract."
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