[The Editors' Verdict] Two Years of Lease Laws: The Paradox of 'Jeonse Panic'

Jokanguk, Head of Construction and Real Estate Department

President Yoon Suk-yeol instructed Minister of Land, Infrastructure and Transport Won Hee-ryong to thoroughly analyze the types of jeonse fraud, coordinate with the Ministry of the Interior and Safety, and form a dedicated police task force to crack down strongly on jeonse fraud crimes. This directive was made during the third Emergency Economic and Livelihood Meeting held on the 20th, where a strict response policy to jeonse fraud was announced. He also reiterated the need to revise the "Three Lease Laws" (Jeonse and Monthly Rent Reporting System, Rent Ceiling System, and Right to Request Contract Renewal) introduced during the Moon Jae-in administration.

Earlier, on the 11th, the Seoul Central District Prosecutors' Office arrested and indicted three main suspects in the "Three Sisters Jeonse Fraud Case," in which over 100 tenants were deceived and nearly 30 billion KRW in jeonse deposits were embezzled. They are accused of acquiring hundreds of multi-family houses such as villas through a no-capital "gap investment" method (investing in houses with a small difference between market price and jeonse price, then raising the jeonse price to seek profit) and defrauding tenants by charging jeonse deposits higher than the market price, a method known as "empty-can jeonse."

According to the prosecution, the ringleader, no-capital gap investor Mr. Kim, along with sales agency representative Mr. A and sales team leader Mr. B, inflated the sale price by adding a "rebate amount" they would share on top of the amount to be paid to the building owner (deposit price). The operators then concealed the inflated sale price and contracted tenants through real estate agents at jeonse prices higher than the actual sale price. Mr. Kim, who even acquired ownership of the villas, later transferred ownership of 136 villas to his two daughters in their 30s.

The "Three Lease Laws (Housing Lease Protection Act)," which guarantee tenants the right to extend their lease contracts for up to four years and limit rent increases to within 5%, will mark their second anniversary on the 31st. At that time, the National Assembly pushed for urgent enforcement starting the day after the law's passage, citing tenant housing stability as the rationale. However, due to the lack of detailed legislative review before immediate enforcement, significant side effects have emerged. Legal loopholes, especially regarding the right to request contract renewal, have intensified conflicts between landlords and tenants, leading to related lawsuits and disputes. The number of related mediation cases surged from 182 in 2019 to 270 in 2020 and 585 in 2021.

Recently, as housing prices have entered a full adjustment phase, concerns over so-called "empty-can jeonse," where jeonse prices exceed sale prices, have grown. This trend started in Daegu and Daejeon, where housing prices have clearly declined, and has recently spread to the Seoul metropolitan area. In fact, the amount of jeonse deposits tenants failed to recover from landlords reached a record high in the first half of this year. According to the Housing and Urban Guarantee Corporation (HUG), as of the end of June, there were 1,595 cases of jeonse deposit return guarantee accidents in the first half of this year, with damages totaling 340.7 billion KRW, the highest ever for a half-year period. The amount of jeonse deposit return guarantee accidents has increased annually, with 344.2 billion KRW in 2019, 468.2 billion KRW in 2020, and 579.0 billion KRW in 2021.

Due to the rent ceiling system, lease contracts that were renewed will start to be released back into the market from next month. Opinions vary on the impact these listings will have on the market, but one thing is clear: jeonse prices have already risen significantly. According to the Korea Real Estate Board, the average jeonse price for apartments in Seoul in June was 633.15 million KRW, an increase of 170.91 million KRW (37.0%) compared to June 2020 (462.24 million KRW), just before the lease laws were enforced. The lease laws, implemented under the pretext of tenant housing stability, ironically caused not only jeonse instability but also fear. With consecutive interest rate hikes in the second half of this year and the emergence of the "empty-can jeonse" problem, both real estate "all-in" investors and jeonse tenants find themselves in a desperate situation. We can only hope that President Yoon's promise to restore the broken ladder of housing opportunity is not too late.