"My House Is 1 Billion Won but the Next Door Is 400 Million Won?"... Confusion Over Double Jeonse Prices

Fluctuating Actual Transaction Prices After New Lease Protection Law Enforcement
Gap Doubled in Eonma, Daechi-dong, Gangnam-gu

[Image source=Yonhap News]

[Asia Economy Reporter Onyu Lim] Since the implementation of the new Housing Lease Protection Act, including the contract renewal request system and the rent ceiling system for jeonse and monthly rent, the phenomenon of dual jeonse prices has become entrenched. Amid a rapid surge in jeonse prices, the deposit increase rate for existing tenants renewing their contracts is limited to within 5%, resulting in some complexes in the Gangnam area where jeonse prices for the same area have doubled.

According to the Ministry of Land, Infrastructure and Transport's real transaction price disclosure system on the 15th, a 76㎡ (exclusive area) unit in Eunma Apartment, Daechi-dong, Gangnam-gu, Seoul, was leased for jeonse at 1 billion KRW last month on the 15th, marking an all-time high. However, on the 8th of this month, a contract was signed for less than half that amount, at 430.5 million KRW. Within a month, the jeonse price for the same apartment and area soared dramatically.

This dual jeonse price phenomenon is a consequence of the new lease law enacted at the end of July last year. While the jeonse shortage intensified and market prices rose by hundreds of millions of won within months, tenants renewing existing contracts only need to increase the deposit by up to 5% under the jeonse and monthly rent ceiling system. In the case of the 430.5 million KRW jeonse transaction at Eunma Apartment, it is estimated that the contract was renewed from 410 million KRW two years ago, with a 5% increase (20.5 million KRW).

The price gap between new jeonse contracts and renewals is even more pronounced in apartments in the Gangnam area. For example, a 94㎡ unit in Raemian Daechi Palace, Daechi-dong, was contracted at a record high of 2.5 billion KRW on the 3rd, but three days later, another contract was signed for more than 800 million KRW less at 1.627 billion KRW. Similarly, a 59㎡ unit in Raemian BlessTige, Gaepo-dong, Gangnam-gu, was contracted for 1.2 billion KRW on the 3rd and 690 million KRW on the 28th of last month, clearly showing the dual price phenomenon.

Such cases are also frequent in areas near downtown such as Mapo, Yongsan, and Seongdong-gu, as well as in outlying regions. An 84㎡ unit in Oksu Park Hills, Oksu-dong, Seongdong-gu, was leased for 1.2 billion KRW on the 5th, but just four days earlier on the 1st, a contract was signed for 787.5 million KRW. In Bongcheon-dong, Gwanak-gu, a 59㎡ unit in Gwanak Prugio recently saw jeonse prices jump significantly, with a contract at 500 million KRW on the 6th and another at 367.5 million KRW three days later. The 367.5 million KRW figure is the 350 million KRW amount plus 5%.

As jeonse real transaction prices are reported inconsistently, confusion among demanders is inevitable amid an already scarce supply of jeonse properties. A representative from a real estate agency in Seongdong-gu, Seoul, said, "Most customers come looking for jeonse properties based on the real transaction prices but are surprised when the market prices differ from their expectations."

The market expects confusion due to rapid institutional changes to continue for some time. Yang Ji-young, director of Yang Ji-young R&C Research Institute, said, "Unless the government reverses the new lease law, the rise in jeonse prices and the resulting dual price phenomenon seem inevitable."