[The Beginning of the Housing Price Bubble Collapse]④ Sejong and Incheon, Jeonse Prices Also Plummet... 'Reverse Jeonse Crisis' Warning Lights

[Asia Economy Reporter Ryu Tae-min] As the housing sales market freezes, jeonse prices are also falling together. Due to the severe transaction cliff, landlords are converting sales into jeonse, causing jeonse listings to accumulate, while the increased burden of loan interest is driving demand toward semi-jeonse and monthly rent, creating even a supply-demand imbalance. In particular, as jeonse prices rapidly decline, concerns about the ‘reverse jeonse crisis,’ where landlords have to return part of the deposit to tenants upon jeonse contract renewal, are growing.

Sejong and Incheon, which soared to the sky... entering a downward path following sales

According to a survey by Real Estate R114 Labs on the 14th, the nationwide apartment jeonse price change rate as of the end of September this year compared to the end of October last year, before the housing price decline began in earnest, was 0.11%. During the same period, Sejong and Incheon decreased by 6.25% and 3.93%, respectively. Following them were Daegu (-3.24%) and Daejeon (-2.83%) with large declines.

By region, Sejong City’s apartment jeonse prices fell by 6.25%, marking the largest decline among the 17 cities and provinces nationwide. In 2020, when discussions about relocating the administrative capital accelerated, jeonse prices in Sejong rose by 60.6%, recording the highest increase nationwide. However, since then, the relocation progress has stalled, and external factors such as interest rate hikes have added pressure, leading to a continuous decline for 46 consecutive weeks since the fourth week of November last year.

Incheon, one of the hottest places in the real estate market last year, also deepened its downward trend. Incheon apartment jeonse prices fell by 3.93% during the period, showing a contrast to the 14.33% increase last year. In particular, Jung-gu, which has relatively poorer access to Seoul and other metropolitan areas compared to other districts, saw a sharp decline of 10.98% during this period.

This is interpreted as the jeonse market falling together as the sales market stagnates. Especially in these regions, prices soared to sky-high levels and were overvalued, so when the economic downturn began, they experienced a sharp decline. Additionally, a large volume of new move-in units was released from the end of last year, intensifying downward pressure on jeonse prices.

Apartment complex in Seoul area (Photo by Asia Economy DB)

Jamsil apartment jeonse prices drop by 100 million to 200 million KRW each

In Seoul, some districts showed sharp declines. Overall in Seoul, jeonse prices rose by 0.31% during the period, but districts in the Gangnam 4 area such as Songpa (-3.94%) and Gangdong (-3.82%) showed steep declines. These areas have many large apartment complexes, so a large volume of jeonse listings is flooding the market while jeonse demand decreases, causing listings to accumulate. According to Apartment Actual Transaction Price (Asil), jeonse listings increased by 37.1% in Songpa (from 2,830 to 3,880) and 37.7% in Gangdong (from 1,363 to 1,878) over the past three months.

Moreover, with consecutive interest rate hikes, new jeonse demand is decreasing. The Korea Real Estate Board analyzed, "Due to the increased interest burden on jeonse loans from interest rate hikes, there is a strong preference for semi-jeonse or renewal contracts," adding, "As demand for new jeonse decreases, urgent sales transactions increase and listing prices fall."

As jeonse prices continue to fall, concerns about the so-called ‘reverse jeonse crisis’ are emerging. The reverse jeonse crisis refers to a situation where landlords cannot return the deposit to tenants when renewing the jeonse contract due to falling jeonse prices. In fact, a jeonse listing for an 84㎡ unit at Resentz in Jamsil-dong, Songpa-gu, is recently listed at around 1.2 billion KRW, which is about 200 million KRW lower than the jeonse price of 1.4 billion KRW at the end of August 2020 when the Lease 2 Act was introduced. Nearby, the Jamsil Els 84㎡ unit’s recent market price is around 1.1 to 1.2 billion KRW, significantly lower than the 1.2 to 1.4 billion KRW jeonse contracts signed two years ago.

Gyeonggi Province, the 'alternative to Seoul,' falters... concerns over decline as move-ins flood

The situation is similar in Gyeonggi Province, considered an alternative residential area to Seoul. Over the past year, apartment jeonse prices in Gyeonggi rose by 0.45%, but some areas have not escaped sluggishness. Uiwang City, where housing prices soared last year due to expectations of the GTX C line stopping there, saw apartment jeonse prices fall by 2.88% during the period, the largest decline. Anyang City followed with a 2.65% drop, the second largest. This is attributed to the influx of more than 11,000 new move-in units from the first half of last year to the first half of this year. Gwangmyeong (-1.38%), Hanam (-1.46%), and Hwaseong (-0.99%) followed.

Ye Kyung-hee, Senior Researcher at Real Estate R114, analyzed, “These areas saw significant price increases due to transportation benefits and urban development. Recently, investment demand has weakened, causing both sales and jeonse prices to fall together, and with the increase in large complex move-ins, the market is unable to absorb the jeonse supply.”