Declining Trend Continues in Provinces... 'Warning for Empty Jeonse Contracts'

Prolonged Decline in Apartment Sale Prices in Daegu, Gwangju, and Sejong

Concerns Over Empty Jeonse and Reverse Jeonse Crisis

[Asia Economy Reporter Kim Min-young] Since the second half of last year, the prolonged decline in apartment sale prices in provincial cities such as Daegu, Gwangju, and Sejong has raised growing concerns about reverse jeonse crises and empty jeonse. Due to the sharp drop in housing prices, there are cases where jeonse deposit insurance applications are rejected in areas with small deposits or where housing prices fluctuate significantly, highlighting the need to address these blind spots.

Professor Seong Juhan of the Department of Real Estate Finance at Changshin University warned in his paper titled "A Study on the Impact of the Increase in Apartment Jeonse Price Ratios on Apartment Sale Prices," to be presented at the 75th National Real Estate Academic Conference hosted by the Korea Real Estate Society on the 27th, that "In provincial small- and medium-sized apartments, jeonse prices are higher than sale prices, causing a surge in cases of empty houses."

Professor Seong also stated, "Since the second half of 2021, several areas including Daegu Metropolitan City, Gwangju Metropolitan City, Pyeongtaek City in Gyeonggi Province, Gimhae City in Gyeongnam Province, Wonju City in Gangwon Province, and Gumi City in Gyeongbuk Province have shown signs of prolonged decline in apartment sale prices, raising concerns about reverse jeonse crises where landlords cannot find jeonse tenants."

In particular, Daegu is expected to have abundant new apartment supply until 2024, making it difficult for landlords to find tenants, while tenants are worried about deposit losses due to empty jeonse. Gap investment, reverse jeonse, and empty jeonse are phenomena caused by the rise in apartment jeonse price ratios.

The jeonse price ratio is the ratio of the jeonse price to the sale price. According to Real Today’s analysis of apartment jeonse price ratios from the Korea Real Estate Board, the jeonse price ratio in other provincial areas (excluding the metropolitan area, five major metropolitan cities, and Sejong City) was 77.1% in the first quarter. The industry considers a jeonse price ratio above 70% to be risky. Furthermore, if the ratio exceeds 80%, the property is highly likely to become an empty house.

The reverse jeonse problem is more likely to occur in provincial areas. Due to loan regulations and strengthened real estate taxes, the preference for owning a single, well-located property has intensified, causing polarization with a widening gap between apartment prices in Seoul’s Gangnam area and provincial cities.

A more serious issue is the prolonged decline in housing prices in provincial cities such as Daegu and Sejong. Sejong apartment prices have been falling continuously since they first recorded a negative growth on May 16 last year. Some transactions have even occurred at prices nearly half of those from a year ago.

Concerns about empty jeonse among Sejong residents are also growing. At a "Youth Housing Policy Meeting" attended by Minister of Land, Infrastructure and Transport Won Hee-ryong yesterday, a resident identified as A expressed, "Both Sejong’s housing prices and official property prices have dropped, but I am worried about losing my deposit because my application for jeonse deposit insurance was rejected." As A pointed out, jeonse deposit insurance is a tenant protection mechanism designed to cover cases where landlords cannot return the jeonse deposit. However, in areas like Sejong where housing prices are falling, it is difficult to obtain insurance, highlighting the need to resolve these blind spots.