"Spent Hundreds of Millions and Renewed"... The Jeonse Market Where Roles Have Reversed

Complete Survey of Seoul Apartment Jeonse from July 2022 to January 2023
Cases of Renewals with Reduced Jeonse Deposits: 11 in July → 736 in December
"If Jeonse Prices Fall, Recovery of Buying Sentiment May Be Difficult"

[Image source=Yonhap News]

"When I said I was leaving because of the interest burden, the landlord first offered to reduce the rent by 150 million won. After I declined once, we finally signed a contract with a 190 million won reduction." (Tenant B at Apartment A in Ahyeon-dong, Mapo-gu)

In the era of high interest rates, cases where landlords pay back hundreds of millions of won to renew jeonse contracts have surged. Especially in the Gangnam 3 districts, where high-priced jeonse is concentrated, transactions with reductions of over 300 million won were easily found. Although the government has launched large-scale deregulation to break the transaction freeze, some analyses suggest that if jeonse prices, which support the sale prices, fall, it will be difficult to revive buyers' sentiment.

On the 11th, Asia Economy analyzed the Ministry of Land, Infrastructure and Transport's actual transaction price disclosure system and found that in December last year, there were a total of 736 cases in Seoul where jeonse contracts were renewed at amounts lower than the existing deposit. In July last year, there were only 11 cases, meaning it increased nearly 70 times in five months. 'Negative jeonse renewals' slightly increased to 18 cases in August and 30 in September, then surged to 146 in October and 413 in November. This month, even though only ten days have passed, the number has already exceeded 100.

The increase in negative jeonse renewals is largely due to the sharp drop in jeonse prices caused by ultra-high interest rates. As jeonse loan interest rates exceed 7%, tenants prefer monthly rent over jeonse. Consequently, jeonse prices, which had rapidly risen after the new lease law was implemented about two years ago, have quickly fallen due to lack of demand. According to the Korea Real Estate Board, Seoul apartment jeonse prices fell by 8.25% last year.

The apartment where landlords returned the largest amount to tenants from July last year to January this year was Raemian Prestige 135㎡ (exclusive area, contract in July) in Banpo-dong, Seocho-gu. The deposit was reduced by a whopping 1 billion won from 4.5 billion won to 3.5 billion won. Tower Palace 1 137㎡ in Dogok-dong, Gangnam-gu (contract in December) dropped 500 million won from 2.4 billion won to 1.9 billion won, and Jamsil Els 84㎡ in Jamsil-dong, Songpa-gu fell 430 million won from 1.38 billion won to 950 million won. Among the 1,470 negative jeonse contract renewals from July last year to January this year, 47% (692 cases) involved reductions of over 100 million won.

This phenomenon signifies a complete reversal of the landlord-tenant relationship in the rental market. The era when landlords interviewed tenants due to the jeonse shortage is over, and now tenants can be selective in choosing renters amid an oversupply of listings. A representative from a real estate agency in Jamsil-dong, Songpa-gu, Seoul, explained, "If landlords have the capacity to return the deposit according to market prices, that's at least fortunate. Landlords who don't have a lump sum right now are pleading with tenants to stay by offering to cover interest costs."

The impact of falling jeonse prices extends beyond the rental market. It causes significant ripple effects in the sales market as well. Jeonse acts as a lever enabling gap investment (buying with jeonse), so when jeonse prices fall, sales demand inevitably decreases. Kyunghee Yeo, senior researcher at Real Estate R114, explained, "Recently, jeonse prices have been falling faster than sale prices. When jeonse prices drop, gap investment and tenants switching to buyers become difficult, which slows down buying demand and naturally pulls down house prices."