KB Management Research Institute 'Trends in the Jeonse and Monthly Rent Market Based on Actual Transaction Prices' Report
Significant Increase in Monthly Rent Share for Single-Family, Multi-Family, and Low-Cost Rental Housing Over the Past Two Years
Decrease in Deposits and Increase in Monthly Rent Share Due to Financial Difficulties Since COVID-19
Rising Demand for Monthly Rent Funds Among Low-Income Groups... Need for Countermeasures
A survey conducted among those engaged in rental businesses such as multi-family houses revealed that few are willing to pay fees to professional companies to handle monthly rent collection and housing maintenance. They said they would rather manage the properties themselves as a side job since the income is not substantial. It is expected that the housing rental management industry will find it difficult to secure many jobs in the near future. The photo shows a residential area in Seoul (not related to the specific content of the article).
[Asia Economy Reporter Sim Nayoung] Kim Jungwon (46, pseudonym), a day laborer living in Dobong-gu, Seoul, was notified by his landlord earlier this year to increase the deposit on his multi-family rental by 50 million won. Living day-to-day and facing reduced work opportunities, he had no immediate way to raise the money. When he visited a local bank to inquire about a personal loan, the interest rate exceeded 4% per annum.
After struggling to find a proper job since the COVID-19 outbreak and running short on living expenses, Kim eventually gave up on a 150 million won jeonse (lump-sum deposit lease) and switched to a monthly rent of 500,000 won with a 20 million won deposit. The refunded deposit was used for living expenses for the time being. Ban Sungjin (52, pseudonym), who runs a real estate agency in the neighborhood, said, "Since interest rates have risen significantly this year, many people prefer monthly rent over taking out risky jeonse loans. Landlords also prefer monthly or semi-jeonse rents because they have nowhere else to invest and prefer cash flow over lump sums."
Over the past two years, the proportion of monthly rents has significantly increased among residents of detached and multi-family houses and low-cost rental housing. As housing costs rise for low-income households, financial circles have called for policies to support their housing expenses.
According to the report "Trends in the Jeonse and Monthly Rent Market Based on Actual Transaction Prices" by KB Financial Group Management Research Institute on the 5th, the share of monthly rents in detached and multi-family houses increased by 20.4 percentage points (from 25.6% in 2019 to 46.0% in Q1 2022). During the same period, the share of jeonse decreased by 15.7 percentage points (from 51.4% to 35.7%). Among apartments, detached/multi-family houses, row houses/multi-unit buildings, and officetels, detached and multi-family houses showed the largest increase in monthly rent share and the largest decrease in jeonse share.
The report explained, "For example, tenants in detached and multi-family houses might prefer paying an additional 20,000 won in monthly rent (based on a 4.8% interest rate) rather than increasing the deposit by 5 million won. Households with relatively small deposits have faced financial difficulties since COVID-19, leading them to withdraw deposits for living expenses and increase their monthly rent share, or they judged that switching to monthly rent was better than bearing interest costs amid rising rates."
Officetels showed the second-largest increase in monthly rent share (16 percentage points, from 25.7% to 41.7%) and decrease in jeonse share (8.8 percentage points, from 52.7% to 43.9%). The report analyzed that officetels, with a high proportion of single-person households and relatively low tenant income and assets, likely chose monthly rent increases over additional deposits. For reference, the monthly rent share in apartments changed from 6.6% to 12.1%, and the jeonse share from 66.7% to 61.0%.
In rental housing, the share of semi-jeonse (ban-jeonse) also increased. The report stated, "In high-priced rental housing, jeonse prices have risen sharply, making it difficult to prepare the deposit difference, leading more households to switch to semi-jeonse." Compared to 2019, the top 10% jeonse prices rose by 100 million won (from 350 million won to 450 million won) in 2021, while the top 10% semi-jeonse deposits increased by only 70 million won (from 330 million won to 400 million won). The gap between jeonse prices and deposits widened from 20 million won in 2019 to 50 million won in 2021, forcing households unable to cover the difference to switch to semi-jeonse.
The situation is similar for low-cost rental housing. For the bottom 25% in jeonse prices, deposits remained at 30 million won until 2020 but dropped to 25 million won in 2021 and further halved to 16 million won in Q1 2022. For the bottom 10%, deposits held at 10 million won from 2016 to 2020 but fell to 5 million won in 2021 and Q1 2022. This suggests that deposits failed to keep pace with jeonse prices, leading to increases in semi-jeonse and monthly rents.
Kim Jinseong, a research fellow at KB Management Research Institute’s Real Estate Research Team, explained, "During the two years of the COVID-19 pandemic, deposits in low-cost rental housing actually decreased, leading to a shift to monthly rent and increased housing costs for tenants." He added, "With interest rate hikes and the contract renewal request right reflected in the market from August this year, expanding jeonse loans for low-asset and low-income groups could become a financial burden, so it is necessary to explore various housing cost support measures."
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