Last Year, the Gap Between Seoul Apartment Sale and Jeonse Prices Reached an All-Time High

Due to Steep Drop in Jeonse Prices Compared to Sales
"Without Financial Power, Switching to Sales in Seoul is Difficult"

[Asia Economy Reporter Kim Hyemin] Last year, the gap between the sale and jeonse prices of apartments in Seoul widened to an all-time high. This was because the jeonse market price fell sharply compared to the sale price.

[Image source=Yonhap News]

According to Real Estate R114 on the 12th, as of the end of last year, the sale price per 3.3㎡ of Seoul apartments was 42.35 million won, and the jeonse price was 20.76 million won. The gap between sale and jeonse prices was 21.59 million won, the largest since the price survey began in 2000.

Last year, both sale and jeonse prices of Seoul apartments showed weakness, but the jeonse price dropped more sharply, widening the gap. The sale price of Seoul apartments fell by 1.45%, and the jeonse price dropped by 3.91% last year. The decline in jeonse prices has been steady since February last year due to the use of renewal request rights and an increase in monthly rent conversions caused by expanded loan interest burdens, which reduced new jeonse demand. On the other hand, as some landlords shifted to jeonse instead of selling quickly during the housing price decline, supply increased, causing a supply-demand imbalance.

As a result, the gap between the sale price and jeonse price for an exclusive 84㎡ apartment in Seoul widened to an average of about 700 million won by the end of last year. This means that jeonse tenants in Seoul apartments require considerable financial power when switching to purchase.

If the price gap between sale and jeonse narrows, the financial burden for purchase decreases, so the volume of sale transactions is likely to increase. In fact, in 2015, when the gap between sale and jeonse prices was 4.96 million won, the number of apartment sale transactions in Seoul reached 120,225, the highest level since 2006. This was influenced by gap investors leveraging jeonse deposits and increased demand for switching to purchase.

Ye Kyung-hee, chief researcher at Real Estate R114, said, "Currently, the gap has widened significantly, and with the prevailing outlook of falling house prices, the motivation for jeonse tenants to switch to purchase is weak," adding, "Although the government has launched comprehensive regulatory easing, it will take more time for buying sentiment to recover."