"Is the One-Room Deposit Correct?"... Small Officetel Jeonse Prices Hurting 2030 Generation

Downtown Studio, 1.5-Room, Two-Room Jeonse Prices Soar
Near Seoul Downtown, Even Small Units Exceed 200 Million Won
If Jeonse Prices Are Too High, 'Kkangtong Jeonse' Risk
Loan Interest Rates Rising... Housing Conditions Worsen for 2030 Generation

[Image source=Yonhap News]

Mr. A, in his early 30s, has recently been struggling to find a jeonse (long-term lease) apartment near Yeouido, Seoul, where his workplace is located. Most two-room apartments have jeonse prices well over 300 million KRW, so he is looking for a small officetel suitable for living alone, but even those prices are not cheap. Mr. A said, "There are many jeonse listings, but most have either very high deposits or do not accept deposit insurance," adding, "With loan interest rates exceeding 3%, the housing cost burden seems to be getting too heavy."

The jeonse prices of small officetels in urban areas, mainly sought after by the 2030 generation who are new to the workforce, continue to soar. Especially, newly built officetels near major business districts such as Gwanghwamun, Yeouido, and Mapo have seen deposits for even one-room or 1.5-room units exceed 200 million KRW, showing a steep upward trend.

According to the officetel price trend survey released by the Korea Real Estate Board, the average jeonse price of officetels under 40㎡ (exclusive area) in Seoul was 159.88 million KRW as of last September, approaching the 160 million KRW mark. Small officetels had an average jeonse price of about 125.99 million KRW until June last year, but after the new lease law was implemented at the end of July the same year, prices surged to 156.13 million KRW and have been rising monthly since.

Officetels generally have high demand for medium to large-sized residential units that can substitute apartments, while small units tend to have relatively lower demand. However, recent analyses suggest that speculative capital has been flowing into non-apartment properties to avoid regulations, causing small officetel jeonse prices to continue rising as well.

Mr. B, in his early 30s, who recently signed a jeonse contract for a small officetel in Dangsan-dong, Yeongdeungpo-gu, said, "Even a small, narrow one-room unit costs about 200 million KRW in deposit if it is somewhat neat," adding, "Since jeonse loans are available, landlords and real estate agents seem to easily consider raising the deposit by several tens of millions of KRW." He also said, "After consulting with the bank, I found out that interest rates have risen from the 2% range to the 3% range, so the monthly interest payments are almost like paying monthly rent."

As jeonse prices rise, concerns about ‘empty shell jeonse’ (kkan-tong jeonse) are also growing. According to industry sources, as the jeonse prices of small villas or officetels rise rapidly, the number of empty shell jeonse cases?where the deposit exceeds the market price?is increasing. Such listings are risky because deposit insurance enrollment is restricted, and there is a high possibility of losing the deposit in case of a jeonse accident.

Mr. C, an office worker living in Yeongdeungpo-gu, said, "Because newly built officetels don’t sell due to high deposits, real estate agents are even offering interest support of 8 million KRW to find tenants," adding, "Since they have to sell through gap investment, they can’t lower the jeonse price, but even with interest support, the deposit is too high compared to the property price, so I hesitate to sign a contract."

Looking at statistics from the Korea Real Estate Board, the ratio of jeonse price to market price for officetels in Seoul is much higher for small units under 40㎡ at 86.20%, compared to 78.62% for 40?60㎡, 75.45% for 60?85㎡, and 67.69% for units over 85㎡. An industry insider said, "Especially for new buildings, jeonse prices and market prices are often similar. To avoid empty shell jeonse, it is important to check in advance whether deposit insurance enrollment is possible."