'Mangmo' Saddened by 'Loan-Backed School District Jeonse'

Rising Jeonse Prices in Popular School Districts like Junggye, Mokdong, and Daechidong
Finding Tenants While Maintaining Loans

Risky if Foreclosed Due to Falling House Prices and Landlord Credit Deterioration
But Contracts Signed Despite Scarcity of Listings and Poor Conditions

[Asia Economy Reporter Choi Dong-hyun] "The landlord says they only want tenants who can take on the loan. Is that possible?" (A representative from real estate agency A in Junggye-dong, Seoul)

As the jeonse prices of apartments in popular school districts in Seoul skyrocket, "Maengmo (Mengmu)" mothers are distressed. Some places have seen jeonse prices nearly double compared to the beginning of the year, and recently, landlords have been trying to shift the risk of multi-billion won debts secured by their homes onto tenants. This is happening about 100 days after the government's Housing Lease Protection Act, which includes the right to renew contracts and caps on jeonse and monthly rent, came into effect at the end of July.

According to the brokerage industry on the 16th, Mr. A listed a jeonse for an 84㎡ (exclusive area) apartment in Cheonggu 3rd Complex, Junggye-dong, Nowon-gu, Seoul, which was trading in the mid-500 million won range until last month, for 850 million won this month. Mr. A added a condition: only tenants who can move in while maintaining the existing loan of about 200 million won secured by the house would be accepted. This is completely different from the usual contracts where the existing loan is canceled as a special clause to protect the tenant's deposit. The current market price of this house is 1.15 billion won, which is only 100 million won more than the sum of the loan and the jeonse price. If the house price falls and the landlord's credit worsens, leading to an auction, the tenant may not be able to recover the full jeonse deposit. A representative from real estate agency A in this area said, "There are very few jeonse listings in this area, so we expect the contract to be signed soon," adding, "We are currently receiving many inquiries."

The reason such 'risky properties,' rarely seen in normal jeonse transactions, are appearing is that demand is increasing not only locally but also from outside areas ahead of the new school term, while supply has sharply decreased due to the implementation of the two lease laws, according to frontline brokers. The law, introduced to protect tenants, ironically tightens tenants in terms of price and contract structure. Recently, jeonse prices in the Junggye-dong area have surged by several hundred million won within just a few days. The jeonse price for an 84㎡ apartment in Cheonggu 3rd Complex in Junggye-dong has risen to 890 million won, nearly 400 million won higher than last month. Nearby, in Geonyeong 3rd Complex, a jeonse contract was signed at 500 million won last month, but now it has risen to 850 million won, and there is only one listing available.

The atmosphere is no different in the academy district around Mok-dong, Yangcheon-gu. According to the Ministry of Land, Infrastructure and Transport's actual transaction price system, a 65㎡ jeonse in Shinshigaji Apartment Complex 2 in Mok-dong was traded for 700 million won on the 4th. The same size apartment was traded for 441 million won on the 26th of last month. It jumped by 260 million won in just nine days. A 47㎡ apartment in Shinshigaji Complex 4, which was traded for 390 million won on the 30th of last month, was signed for 500 million won on the 7th. A representative from real estate agency B in Mok-dong said, "Even from the perspective of receiving commissions, the jeonse prices have risen so much that it's embarrassing to tell tenants the prices," adding, "But since listings are so scarce, contracts are signed within 3 to 4 days."

Jeonse prices for new apartments near Mok-dong have surpassed their sale prices. For example, the jeonse for Raemian Mokdong Adelice in Sinjeong-dong, scheduled for move-in in January next year, is currently over 700 million won for 59㎡ and over 900 million won for 84㎡. When it was sold in June 2018, the sale price for 59㎡ was between 526 million and 668 million won, and for 84㎡ it was between 719 million and 936 million won.

Due to the shortage of apartment jeonse, demand is rapidly spreading to officetels and multi-family houses (villas). Last month, the jeonse price for officetels in Seoul rose by 0.17%, marking the highest increase in two years since October 2018 (0.18%). In the academy district of Daechi-dong, Gangnam-gu, demand for semi-jeonse or monthly rent villas has also significantly increased recently.