If Conversion Rate Is Low, Jeonse to Wolse Is Cheaper
But Wolse to Jeonse Converted Deposit Increases
Registered Lease Tenants' Damage Is Inevitable
[Asia Economy Reporter Lee Chun-hee] It has been revealed that tenants of registered rental housing bear a higher converted deposit when switching from monthly rent to jeonse (lump-sum deposit lease) compared to tenants of general rental housing. There are concerns that registered rental housing, which was introduced as a government policy, may actually increase the burden on low-income households.
According to the industry on the 13th, the Ministry of Land, Infrastructure and Transport (MOLIT) informed in response to a related inquiry posted on the National Petition Board last month that "registered rental housing applies the jeonse-to-monthly rent conversion rate stipulated in the Housing Lease Protection Act not only when converting the rental deposit to monthly rent but also in the opposite case."
The jeonse-to-monthly rent conversion rate is the ratio used to convert a jeonse deposit into monthly rent, originally set at around 4% (base interest rate + 3.5 percentage points). However, last September, the government lowered this rate to 2.5% (base interest rate + 2.0 percentage points) as cases of landlords passing increased tax burdens onto tenants by converting jeonse to monthly rent increased. For example, if a jeonse deposit of 800 million KRW is reduced to 500 million KRW and the remainder is converted to monthly rent, previously the tenant would have paid 1 million KRW per month, but applying the revised conversion rate, the monthly payment is reduced to 625,000 KRW.
However, at that time, concerns were raised that this change would conversely increase the burden on tenants converting monthly rent to jeonse. For instance, when converting a monthly rent of 1 million KRW to jeonse, applying the 4.0% conversion rate in reverse results in an additional deposit of 300 million KRW, but at 2.5%, the additional deposit rises to 480 million KRW.
Nonetheless, MOLIT explained that this conversion rate applies only when converting jeonse to monthly rent, and when converting monthly rent to jeonse, the 'market conversion rate' announced by the Korea Real Estate Board should be followed. The conversion rates announced monthly by the Real Estate Board as of November last year were 5.7% nationwide, with regional rates of 4.8% in Seoul, 5.9% in Gyeonggi, and 5.9% in Busan.
However, according to MOLIT’s recent response to an inquiry on the National Petition Board, this regulation applies only to general rental housing, and for registered rental housing, the jeonse-to-monthly rent conversion rate under the Housing Lease Protection Act must be applied when converting monthly rent to jeonse.
The problem is that the lower the conversion rate, the larger the converted deposit becomes when switching from monthly rent to jeonse. The rent calculator on the government’s registered rental management site, RentHome, also applies 2.5% (base interest rate 0.5% plus 2% 'monthly rent conversion rate') to both monthly rent→jeonse and jeonse→monthly rent cases.
MOLIT explained that since lease condition changes without tenant consent are illegal, a higher jeonse-to-monthly rent conversion rate would not actually be applied, but this view has been criticized as ignoring reality. An industry expert said, "It is not easy for tenants to exercise all their rights during the actual contract process," adding, "Moreover, since applying the 2.5% conversion rate for registered rental housing is legal, it is questionable whether tenants can refuse this."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
