Rising Monthly Rent Amid Interest Rate Hikes and Concerns Over Empty Jeonse Contracts

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While housing sale prices and jeonse (long-term lease) prices are both declining, monthly rent prices continue to soar, leaving tenants' housing insecurity unresolved. This is because the demand for monthly rent is steadily increasing due to the phenomenon of 'jeonse turning into monthly rent' caused by interest rate hikes and concerns over 'empty jeonse' (Kkangtong Jeonse), which is pushing up monthly rent prices.

According to the Korea Real Estate Board on the 19th, the nationwide comprehensive monthly rent price index for housing (including apartments, multiplex houses, and detached houses) in August recorded 102.8, up 0.15% from the previous month. This marks 32 consecutive months of increase since December 2019 (97.8). The monthly rent price index is based on June 2021 (100) and combines pure monthly rent (deposit less than 12 months of rent), semi-monthly rent (12 to 240 months), and semi-jeonse (over 240 months).

The rise in monthly rent prices is led by apartments. The nationwide apartment monthly rent price index rose 1.46% from 102.5 at the beginning of this year to 104 in August. In contrast, the index including multiplex and detached houses increased by 1.08%, from 101.7 to 102.8 during the same period. According to private statistics from KB Kookmin Bank, monthly rent prices are also steadily rising. The KB apartment monthly rent index for Seoul, which was 99.5 at the end of last year, surged 4.42% to 103.9 in August.

The interest rate hikes that began in earnest in the second half of last year are particularly accelerating the 'jeonse turning into monthly rent' trend. As interest rate hikes increase loan interest burdens, new jeonse demand is decreasing, and existing contracts are increasingly switching to semi-monthly rent.

Recently, concerns over 'empty jeonse' due to falling house prices have also induced a preference for monthly rent. In a survey conducted by Zigbang last month, 42.6% of tenants out of 10 said they "prefer monthly rent." This was only 17.9% in October 2020. Falling house prices are lowering the jeonse rate, increasing concerns over empty jeonse. According to the Housing and Urban Guarantee Corporation (HUG), a total of 511 guarantee accidents worth 108.9 billion KRW occurred in 75 local governments nationwide during August alone.

As the trend of interest rate hikes is expected to continue for the time being, the decline in jeonse prices and the rise in monthly rent prices are likely to persist. KB Financial Group's Financial Research Institute stated, "Although the recent rise in jeonse prices is rapidly slowing down, the increase in monthly rent demand due to high jeonse prices and rising jeonse loan costs continues," adding, "The upward trend in monthly rent prices is expected to continue for the time being."