[Jeonse Deposit Crisis] ① Jeonse Eviction Loan Soars 12.1% in One Year

Leasehold Registration Increases by 38% and Security Deposit Non-Return Incidents Surge

[Asia Economy Reporters Yu Je-hoon and Bu Ae-ri] Lee Jeong-hoon (43), an office worker who owns an apartment with a jeonse lease in a housing district in Gyeonggi Province, recently faced difficulties after receiving a contract termination notice from his tenant. A new tenant was hard to find, and out of desperation, he offered the existing tenant reverse jeonse rent by paying the loan interest corresponding to the drop in the jeonse price, but the offer was rejected. Ultimately, Mr. Lee mobilized all his liquidity and barely returned the deposit through a bank jeonse eviction loan based on actual residence.

The outstanding balance of jeonse eviction loans at commercial banks has increased by more than 10% over the past year. This is because, with the rise in the base interest rate and the resulting decline in jeonse prices, the number of 'reverse jeonse' properties has increased, leading more landlords to turn to banks to return deposits to tenants.

According to the financial sector on the 9th, the outstanding balance of jeonse eviction loans (jeonse deposit return loans) at major commercial banks (KB Kookmin, Shinhan, Hana) at the end of last year was 14.5893 trillion won. This represents an increase of about 12.1% compared to the end of the previous year (13.0146 trillion won).

Jeonse eviction loans are a type of mortgage loan executed for the purpose of returning the deposit when a tenant moves out. Since the purpose is to return the deposit, the increase in the outstanding balance of jeonse eviction loans indicates that reverse jeonse, where landlords face difficulties returning tenant deposits due to falling jeonse prices, is on the rise.

An official from a commercial bank said, "Until 2021, some banks operated loan products exclusively for reverse jeonse, but due to low demand, they discontinued sales. However, since last year, as both house prices and jeonse prices have fallen, landlords experiencing reverse jeonse appear to be knocking on banks' doors to secure deposits to return to tenants," he explained.

[Image source=Yonhap News]

Signs of a reverse jeonse crisis are also appearing in various indicators. According to the Court Registry Information Plaza, the number of applications for tenant rights registration nationwide last year was 16,445, a 37.8% increase from the previous year (11,935). Tenant rights registration is a system that allows tenants to maintain their priority rights and protection even if they move out when the landlord fails to return the deposit at the end of the lease.

Deposit return accidents are also increasing. According to the Housing and Urban Guarantee Corporation (HUG), the amount of deposit return guarantee accidents nationwide reached 985.4 billion won as of November last year, already far exceeding the previous year's total of 579 billion won. The financial sector is also expressing concerns that the reverse jeonse crisis will intensify from the second half of this year. This is because tenants who signed jeonse contracts in the second half of 2021, when domestic housing sales prices and jeonse prices were at record highs, are likely to look for new jeonse homes or switch to monthly rent considering the lowered jeonse prices and increased jeonse loan interest rates.

Professor Seo Ji-yong of the Department of Business Administration at Sangmyung University said, "The decline in jeonse prices is the root cause of the problem. When reverse jeonse occurs, tenants become increasingly anxious about getting their deposits back, and landlords also face difficulties in returning deposits. This concern is especially greater for landlords who made gap investments by purchasing homes with tenants to gain capital gains," he explained.