'Jeonse to Wolse' Acceleration... Sharp Increase in Wolse Proportion in Jeonwolse Transactions

Ministry of Land Announces May Housing Statistics
400,000 Jeonse and Wolse Transactions... 56% Increase from Previous Month
Wolse Share Rises from 50.4% to 59.5%
Sales Transaction Slump Continues... Unsold Units in Seoul Metropolitan Area Up 20%

Photo by Asia Economy

In May, nearly two years after the implementation of the Three Lease Laws, the volume of jeonse and wolse (monthly rent) transactions in the housing lease market surged, with the proportion of wolse increasing significantly. This phenomenon is understood to be caused by the acceleration of the 'conversion of jeonse to wolse' due to interest rate hikes and other factors, as well as a sudden surge in lease contract reports as the grace period for the jeonse and wolse reporting system expired in May.

According to the Ministry of Land, Infrastructure and Transport on the 30th, the total number of jeonse and wolse transactions nationwide in May was 404,036, a 56.4% increase compared to 258,318 transactions in the previous month. Among these, wolse accounted for 59.5% (240,321 transactions), significantly surpassing jeonse transactions (163,715 transactions, 40.5%).

The proportion of wolse in jeonse and wolse transactions was 50.4% in April (130,295 out of 258,318 transactions), marking the first time since the government began compiling related statistics in 2011 that wolse exceeded jeonse. In just one month, this proportion jumped by nearly 10 percentage points (9.1 percentage points), setting a new record high.

Based on cumulative transactions from January to May this year, the proportion of wolse in total lease transactions reached 51.9%, up 3.2 percentage points from 48.7% in the previous month, surpassing jeonse for the first time. This is 10.0 percentage points higher than the same period last year (41.9%) and 10.5 percentage points higher compared to the five-year average (41.4%).

The significant increase in the proportion of wolse is largely attributed to the impact of the Two Lease Laws introduced in July 2020 (the right to request contract renewal and the cap on rent increases). As tenants increasingly exercised their right to renew contracts and continue living in existing homes, jeonse listings became scarce, and landlords raised jeonse prices sharply by applying four years' worth of deposit increases at once. Tenants unable to afford the rapidly rising deposits were pushed into the wolse market. The rise in interest rates increased tenants' burdens for jeonse loans, and landlords preferred wolse due to the 'tax shifting' phenomenon caused by increased property taxes, among other complex factors.

Additionally, since the full implementation of the jeonse and wolse reporting system in June last year, the number of reported wolse contracts for quasi-housing such as officetels and one-room units, which had previously been underreported, has increased. The Ministry of Land, Infrastructure and Transport analyzed that this also contributed to the expansion of the wolse proportion. The ministry stated, "As the grace period for the jeonse and wolse reporting system expired on May 31, contracts that had been delayed in reporting temporarily increased, leading to a significant rise in jeonse and wolse transactions in May." It added that the increase in wolse proportion was influenced by "an increase in reported wolse transactions for non-apartment properties, which had a high tendency of non-reporting."

Meanwhile, amid a continued transaction freeze in the housing sales market due to interest rate hikes and tightened loan regulations, unsold housing units have also increased.

As of the end of May, the number of unsold houses nationwide was 27,375, up 0.7% from the previous month. Unsold units in the metropolitan area numbered 3,563, a 20.0% increase from the previous month, while those in provincial areas decreased by 1.6% to 23,812 units. 'Post-completion unsold' units?those that remain unoccupied after construction completion?numbered 6,830, down 2.1% from the previous month.

Since the new government took office, housing transaction volumes have slightly recovered due to expectations of deregulation. Nationwide housing sales in May totaled 63,200, an 8.2% increase from the previous month. However, compared to the same month last year, sales decreased by 35.2%, remaining at a low level.

By region, Seoul recorded 7,664 transactions, up 25.2% from the previous month; Gyeonggi Province had 13,890 transactions, up 4.7%; and Incheon had 4,760 transactions, up 20.1%. Compared to April last year, Seoul's transactions decreased by 41.7%, Gyeonggi by 44.8%, and Incheon by 47.6%. Provincial areas recorded 36,886 transactions, up 5.2% from the previous month but down 26.4% year-on-year.

By housing type, apartment sales in May were 37,124, up 4.1% from the previous month, while non-apartment housing sales (26,076) increased by 14.7%. However, compared to the same month last year, these figures decreased by 39.8% and 27.3%, respectively.

The number of housing permits nationwide was 48,216, a 30.5% increase compared to May last year. The metropolitan area recorded 14,840 permits, down 6.4% from a year earlier, while provincial areas saw a 58.2% increase to 33,376 permits. Seoul's housing permits in May were 2,594, down 42.6% year-on-year.

The scale of housing starts nationwide in May was 30,494, a 41.8% decrease compared to the same month last year. The metropolitan area recorded 13,059 starts, down 32.0% year-on-year, and provincial areas had 17,435 starts, down 47.5%. Apartment starts (20,402) decreased by 23.5% compared to a year ago, while non-apartment housing starts (10,074) dropped by 60.8%.

The number of apartment complex sales (approvals) nationwide in May was 17,358, down 18.3% year-on-year. Of these, the metropolitan area saw a 45.6% decrease to 5,773 units, while provincial areas increased by 9.1% to 11,585 units.

Last month, the total number of completed housing units nationwide was 42,744, a 70.3% increase compared to the same month last year. By region, the metropolitan area recorded 20,375 completions, up 44.6% from the previous month, and provincial areas had 22,369 completions, up 103.2%.