Unstoppable Jeonse Prices Amid Decrease in Rental Supply Due to Lease Law

Last Week, Nationwide Average Rose by 0.18%

[Asia Economy Reporter Minyoung Kim] The upward trend in jeonse prices shows no signs of stopping due to the implementation of the Lease Protection Act and a decrease in move-in supply. In the Seoul metropolitan area, the decrease in apartment move-in supply is expected to continue until 2023, suggesting that the jeonse shortage may become prolonged.

According to the weekly apartment trend report by the Korea Real Estate Board on the 25th, nationwide jeonse prices rose by 0.18% last week. Although the rate of increase has slowed since the last week of July (0.22%), prices have risen by as much as 7.5% compared to the beginning of the year. Even considering the cumulative increase rate up to August this year (4.5%), it is the largest rise in 20 years since 2011 (11.70%).

The rise in jeonse prices in the Seoul metropolitan area is even steeper. The Korea Real Estate Board's jeonse price index for the metropolitan area peaked at 0.27% on August 16 and has gradually decreased, recording 0.21% last week. Although the upward trend has slowed, prices have increased by more than 8% compared to the beginning of the year.

The situation in Seoul is similar. Last week, Seoul's jeonse prices rose by 0.13% compared to the previous week (as of the 11th), showing a slowdown in the upward trend, but prices have jumped 4.16% since the start of the year.

The sharp rise in jeonse prices is attributed to the Lease Protection Act and the decrease in move-in supply. Under the Lease Protection Act, rent increases are limited to within 5%, causing newly contracted apartment prices to rise sharply, and the strengthening of the actual residence requirement has led to an increase in landlords not renewing lease contracts. Additionally, the decrease in move-in supply, which affects jeonse supply and demand, has combined to push up jeonse prices.

A representative from the Korea Construction Industry Research Institute said, "The decrease in apartment move-in supply, along with policy factors such as the implementation of the Lease Protection Act and the strengthening of the actual residence requirement, have collectively influenced the rise in jeonse prices."

The problem is that the issue of decreasing apartment move-in supply will not be resolved over the next three years. According to the Construction Industry Research Institute's survey, nationwide apartment move-in supply will increase to 302,000 households next year and 301,000 households in 2023. However, in the Seoul metropolitan area, next year's move-in supply will decrease to 161,000 households, 3,000 fewer than this year's 164,000 households, and shrink further to 150,000 households in 2023.

However, there are also views that the upward trend in jeonse prices may temporarily slow down as jeonse listings have recently increased. According to Apartment Actual Transaction Price (Asil), from August 1 to the present, jeonse listings in Seoul increased by 39.5%, and in Gyeonggi Province by 38.1%.