Shortage of Listings and Loan Regulations... Concerns Over Intensified 'Jeonse Pain' After Chuseok

Seoul and Capital Area Jeonse Prices Keep Rising
Financial Authorities to Further Tighten Jeonse Loans in Second Half
Jeonse Prices Soar... Growing Public Dissatisfaction
Jeonse Prices Expected to Rise Further After Second Half of Next Year

High-rise apartment buildings stand tall in Dongchun-dong and Songdo International City, as seen from Cheongryangsan in Dongchun-dong, Yeonsu-gu, Incheon. [Image source=Yonhap News]

Concerns are growing that a full-scale jeonse (long-term lease) crisis could begin after the Chuseok holiday. Amid a shortage of listings causing jeonse prices to continue their relentless rise, it is expected that regulations on jeonse loans will be further tightened in the second half of the year, potentially increasing the burden on jeonse demanders.

According to the Korea Real Estate Board on the 20th, Seoul apartment jeonse prices have been rising for 116 consecutive weeks since July 2019. The metropolitan area has risen by 0.25% for four consecutive weeks recently, and Seoul also saw a 0.17% increase during the same period.

The Real Estate Board explained, "Seoul continues to experience a shortage of jeonse listings," adding, "Prices have risen mainly in mid-to-low priced complexes in areas with relocation demand due to reconstruction and in regions with favorable living conditions."

Jeonse prices are also sharply rising in some parts of Gyeonggi Province, such as Siheung City (0.59%), Danwon-gu in Ansan (0.57%), Yangju City (0.57%), and Deogyang-gu in Goyang (0.42%).

Jeonse prices began to fluctuate starting late July last year when the Monthly Rent Cap System and the Right to Request Contract Renewal were implemented. The new lease law led to an increase in monthly rent conversions and a decrease in jeonse supply, fueling a surge in jeonse prices.

Industry insiders predict that the jeonse shortage may accelerate after the Chuseok holiday as it coincides with the autumn moving season. Since the number of housing units available for move-in in the second half of this year is lower than in previous years, chronic supply shortages are inevitable.

According to KB Kookmin Bank’s monthly housing price trend time series statistics, metropolitan area apartment jeonse prices remained around 310 million KRW in 2018-2019 but surpassed 400 million KRW in January this year and have recently been soaring by an average of 7 million KRW per month.

The government's tightening of jeonse loan regulations is also a burden. Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, recently stated, "Jeonse loans in the second half of this year will inevitably be squeezed," adding, "We will strongly manage loans for multi-homeowners or those suspected of speculative purposes."

The government sets the loan supply volume that banks can provide annually, and since an excessive amount was disbursed in the first half, loan restrictions are necessary to manage the target amount.

There is also growing concern about excessive jeonse loans taken out mainly by people in their 20s and 30s who then use the surplus funds for investment, which supports the case for loan regulation. Financial authorities are reviewing detailed plans to announce household debt management measures after Chuseok.

However, since jeonse loans significantly affect the housing of low-income households, many believe a cautious approach is necessary. Non-homeowner tenants are already dissatisfied due to continuous rises in sales and jeonse prices, and tightening loans further could worsen public opinion.

This jeonse instability is likely to continue until after the second half of next year. This is because the contracts of tenants who extended their leases using the Right to Request Contract Renewal this year will expire in the second half of next year.

Tenants can only use the Right to Request Contract Renewal once, so when signing a new lease after one extension, they must bear all the accumulated increases without the 5% cap. Ultimately, jeonse prices, which are currently suppressed by the contract renewal right, are expected to soar after August next year due to a "price alignment" effect.