Seoul Jeonse Supply-Demand Index Hits Highest in 5 Years
"Lease Renewal Right and Rental Laws Have Decisive Impact"
Complex in Daejeon Also Sees 200 Million KRW Increase in Two Months
[Asia Economy Reporters Onyu Lim and Mune Won] Mr. A, who was refused a lease renewal for his jeonse house in Wolgye-dong, Nowon-gu, Seoul due to the landlord's notification of intent to reside, is desperately struggling as he cannot find a new place to live immediately. The price has surged by tens of millions of won within three months, and even finding available listings is difficult. He said, "Putting aside the rising jeonse prices, there aren't even any houses to look at. Is the new Housing Lease Protection Act really a law for tenants?"
Since the implementation of the new Housing Lease Protection Act, including the right to request contract renewal and the cap on rent increases for jeonse and monthly rent, the 'jeonse crisis' has escalated to its worst level. Especially, the jeonse crisis that began in the Gangnam area of Seoul has triggered a chain reaction, rapidly spreading from the outskirts of Seoul to the metropolitan area and then to large provincial cities. As the government has yet to present an appropriate solution to calm jeonse prices in the short term, concerns have arisen that the suppressed sale prices due to government regulations might be stimulated by the rising jeonse prices.
◆Tens of Millions Increase Overnight... Unstoppable Jeonse Prices
According to the KB Kookmin Bank Monthly Housing Market Trend on the 2nd, Seoul's jeonse supply-demand index recorded 191.8, breaking the highest record in five years since October 2015 (193.8). The jeonse supply-demand index is based on a survey of about 4,000 sample real estate agencies, with a higher score (1 to 200) indicating a shortage of jeonse supply. Experts view the right to request contract renewal under the new Housing Lease Protection Act, which took effect at the end of July, as the decisive reason for worsening the jeonse supply shortage. This is because the number of cases renewing existing jeonse contracts increased, resulting in fewer listings on the market.
Analyzing actual jeonse contract cases reveals how severe the recent jeonse shortage has become. According to the Ministry of Land, Infrastructure and Transport's Real Transaction Price Disclosure System, the representative complex in Dogok-dong, Gangnam-gu, Seoul, Dogok Rexle 84㎡ (exclusive area) had a jeonse contract signed on the 20th of last month for 1.775 billion KRW. Jeonse prices, which were at a maximum of 1.35 billion KRW in June just before the new lease law was implemented, rose to 1.4 billion KRW in July, exceeded 1.5 billion KRW in September, and soared to the 1.7 billion KRW level within four months.
In the case of Mok-dong New Town 5 Complex 65㎡ in Yangcheon-gu, a jeonse contract was signed for 750 million KRW on the 15th of last month. Compared to the actual transaction price of 560 million KRW (12th floor) in June, this is an increase of 190 million KRW. A representative from Mok-dong C Real Estate Agency said, "Mok-dong has excellent school districts, so jeonse demand is high, and prices are rising to the point where people say it's 'crazy.' Even in Complex 5 alone, out of 1,848 households, there are only two jeonse listings available."
The situation is similar for small apartments on the outskirts of Seoul, where jeonse prices are relatively cheaper. For example, Lotte Castle Gold Park Phase 1, 59㎡ in Doksan-dong, Geumcheon-gu, had a jeonse contract signed at a record high of 590 million KRW on the 17th of last month. Two years ago, the jeonse price for this apartment was about 380 to 390 million KRW, approximately 200 million KRW lower.
◆From the Metropolitan Area to Provinces... No News on Countermeasures
The jeonse shortage in the outskirts of Seoul has spread to the metropolitan area. Especially, jeonse prices in major areas of Gyeonggi Province, classified as within commuting distance to Seoul, have recently surged sharply. For instance, Hillstate Yeongtong 62㎡ in Mangpo-dong, Yeongtong-gu, Suwon, had a jeonse contract signed for 570 million KRW on the 21st of last month, jumping 140 million KRW from the previous highest price of 430 million KRW recorded in June. In Cheolsan-dong, Gwangmyeong, Gyeonggi Province, Cheolsan Raemian Xi 84㎡ was contracted at a record high of 760 million KRW on the 15th of last month. The previous highest price was 620 million KRW in June, marking a 140 million KRW increase in four months.
Large provincial cities are also at risk. In Daedeok New Town, Sangsang-dong, Yuseong-gu, Daejeon, a jeonse contract was signed at a record high of 650 million KRW last month, with prices rising by 200 million KRW in just two months.
Although the jeonse shortage is spreading nationwide, the government has yet to present a sharp solution. Since the market supply has significantly decreased after the implementation of the new lease law, it is not easy to immediately prepare measures to expand supply or reduce jeonse prices, which require massive fiscal investment. There is also concern that additional measures might cause other side effects, increasing already high public criticism or pushing up sale prices that have just stabilized.
Confusion continues within government ministries as well. Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, said at the National Assembly audit on the 8th of last month, "Jeonse prices do not seem likely to fall easily," and "We will consider additional measures," but there has been no news for nearly a month. The Ministry of Economy and Finance and the Ministry of Land, Infrastructure and Transport, which oversee real estate policies, have continued to have disagreements recently over the speed, budget, and plans for additional measures.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
