Concerns Over Jeonse Shortage Heighten Attention on 'Additional Measures'... Will the Expansion of the Jeonse and Monthly Rent Cap Be Proposed?

Concerns Over Historic Jeonse Shortage After Autumn Moving Season
Decrease in Move-in Volume and Accelerated Shift to Monthly Rent
Possibility of Rent Cap Application on New Contracts Raised
Standard Rent Also Discussed Following Introduction of Reporting System

Real estate stock photo / Photo by Mun Ho-nam munonam@

As concerns over the shortage of jeonse (long-term lease) housing grow ahead of the autumn moving season, there is analysis that the government may consider strengthening the jeonse and wolse (monthly rent) price cap system or introducing a standard rent system. The rise in jeonse prices and the deepening of dual pricing triggered by the new Housing Lease Protection Act continue, and since the supply performance of the November 19 jeonse measures announced last year has also been poor, attention is focused on the government's additional jeonse measures expected before the end of the year.

According to the real estate industry on the 23rd, there is growing analysis that the imbalance in jeonse supply and demand could worsen in the second half of this year, as the decrease in move-in volume coincides with the autumn moving season. According to Real Estate 114, the number of move-ins in Seoul in the second half of this year is 13,023 households, down about 9,700 households from 22,786 in the second half of last year. The jeonse supply-demand index, which indicates supply relative to demand, still exceeds the baseline of 100, making price increases inevitable.

As landlords face increased tax burdens, the conversion from jeonse to wolse is rising, and the supply performance of the November 19 jeonse measures in the first half of this year reached only about half of the target, which is expected to add pressure to the market. According to data received by People Power Party lawmaker Song Eon-seok from the Ministry of Land, Infrastructure and Transport, the government planned to supply 265 public jeonse housing units and 2,432 newly purchased contracted housing units in Seoul in the first half of this year, but the execution rates were only 26.5% and 81.1%, respectively.

The industry cautiously predicts that the government may introduce regulatory measures such as expanding the current jeonse and wolse price cap system, which now applies only to contract renewals, to new contracts as well. Since the rent increase rate is limited to 5% at contract renewal, landlords are raising jeonse prices to receive four years' worth of rent increases in advance, accelerating short-term price surges.

The solidification of the 'dual pricing' between renewed contracts and new contracts due to the implementation of the jeonse and wolse price cap system is also problematic. For example, in the 84.43㎡ unit of Eunma Apartment in Gangnam-gu, Seoul, a jeonse contract was signed for 1.05 billion KRW on the 24th of last month, but on the 8th of this month, a contract was made for 514.5 million KRW, more than twice the price difference within the same complex. The Ministry of Land, Infrastructure and Transport and the Ministry of Economy and Finance are reportedly considering measures focused on resolving this dual pricing issue.

Since the jeonse and wolse reporting system was introduced in June last year, discussions on introducing a standard rent system are likely to resurface. The standard rent system is a system where local governments calculate and announce appropriate rents considering the location, type, and size of housing. Until now, it was difficult to calculate appropriate rents, but with the introduction of the jeonse and wolse reporting system, the government has significantly increased the information it can secure, laying the foundation for its introduction. The Democratic Party of Korea has already proposed a bill centered on introducing the standard rent system.

However, since the new Housing Lease Protection Act caused side effects such as soaring jeonse prices last year, many analyses suggest that regulations could again distort the market and increase confusion. A Ministry of Land, Infrastructure and Transport official said, "We are closely monitoring the jeonse market situation" and "We are reviewing appropriate measures to alleviate housing instability for low-income households."