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"Where Can I Get 200 Million Won Right Now?"... Landlords Lose Sleep Amid Reverse Jeonse Crisis

Reverse Jeonse Listings Pile Up as Tenants Prefer Monthly Rent Amid High Interest Rates
Jeonse Prices in Newly Built Mapo Complexes Fluctuate Sharply
Expert Warns: "Cases of Unreturned Deposits Likely to Increase"

"Where Can I Get 200 Million Won Right Now?"... Landlords Lose Sleep Amid Reverse Jeonse Crisis [Image source=Yonhap News]

A man in his 30s, identified as Mr. A, who works for a major corporation and made a "gap investment" (purchasing a property with a tenant under a jeonse lease) in Mullae-dong, Yeongdeungpo-gu, Seoul, has been unable to sleep at night lately. This is because his tenant notified him that they would not be renewing the jeonse contract, which expires in April this year. In April 2021, Mr. A had received 520 million won as a jeonse deposit, but after contacting a real estate agency, he was told he would need to lower the price to 400 million won to find a new tenant. He even offered the current tenant 7 million won in interest support to stay, but was turned down. Mr. A lamented, "Where am I supposed to get 120 million won right away?" and added, "Even if I use both a credit loan and an overdraft account, it's still not enough."

As the preference for monthly rent increases due to high interest rates, landlords facing the so-called "reverse jeonse crisis" are under intense pressure. In some areas of Seoul where large new apartment complexes have recently been completed, "half-price jeonse" deals have emerged, and landlords are scrambling to secure hundreds of millions of won to return deposits to tenants.


According to real estate big data firm Asil on January 1, there are currently about 55,000 jeonse apartment listings in Seoul. This is the highest number since jeonse listings began to be tracked in 2020, and it represents an increase of 8,000 from about 47,000 two months ago. Compared to the summer of 2021, when there were 19,000 listings during the jeonse shortage, the number has tripled.


The severe backlog of jeonse listings is largely due to tenants preferring monthly rent as interest rates rise. As the interest on jeonse loans has surpassed monthly rent, tenants are choosing monthly rent over jeonse. In fact, the number of jeonse transactions for Seoul apartments dropped from 11,605 in July last year to 11,268 in August, 11,109 in September, 11,153 in October, 8,181 in November, and 6,153 in December.


As demand fails to keep up with supply, jeonse prices are falling rapidly. According to the Korea Real Estate Board, in the fourth week of December last year, Seoul apartment jeonse prices fell by 1.22%, marking the largest drop for the 11th consecutive week.

"Where Can I Get 200 Million Won Right Now?"... Landlords Lose Sleep Amid Reverse Jeonse Crisis The view of Mapo and Yongsan areas in Seoul [Image source=Yonhap News]
Reverse Jeonse Crisis Spreads in Mapo and Gaepo Due to New Large Complexes... "Half-Price Jeonse" Appears

The reverse jeonse crisis is particularly severe in areas where new large apartment complexes are being occupied one after another.


For example, Mapo The Classy in Ahyeon-dong, Mapo-gu, Seoul (1,419 units), which began occupancy at the end of November last year, is still struggling to find tenants. A representative from Ahyeon-dong A Real Estate Agency commented, "Because many tenants exercised their contract renewal rights, there is little new demand for rentals, and with interest rates rising, inquiries for semi-jeonse or monthly rent exist, but the high interest burden makes jeonse transactions nearly impossible." Homeowners who must settle the final payment by early February next year are reluctantly lowering prices to attract tenants. Asking prices are currently set at 500 million won for a 59m² unit (exclusive area) and from 650 million won for an 84m² unit.


This price-cutting competition among owners of new large complexes is dragging down jeonse prices in older neighboring apartments as well. For example, in the adjacent Mapo Raemian Prugio complex, the asking price for a 59.96m² unit, which was traded for 950 million won in April, has dropped by 400 million won to 550 million won. This is truly a "half-price jeonse."


The problem is that this new large complex-driven jeonse shock could intensify in southern Seoul, particularly Gangnam, next year. According to Real Estate R114, 6,371 households in Gangnam-gu are scheduled to move in next year. This is about eight times the number of new units (802) this year, and is expected to have a significant impact on the local jeonse market.


Indeed, Gaepo Xi Residence in Gaepo-dong, Gangnam-gu, Seoul (3,375 units), which will begin occupancy in February next year, is already seeing fierce competition for lower jeonse prices. For a 59m² unit, the asking price was around 1.3 billion won just last month, but now listings are available for as low as 600 million won.


Yeo Kyunghee, Senior Researcher at Real Estate R114, stated, "With demand for jeonse weakening due to the high burden of loan interest, regions with concentrated new supply are seeing sharp drops in jeonse prices, increasing the likelihood of a wider reverse jeonse phenomenon." She added, "There may also be more cases where homeowners cannot settle the final payment for new apartments due to problems returning deposits."




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