Announcement on Measures to Prevent Jeonse Fraud and Support Victims
Guaranteed Jeonse Rate Reduced from 100% to 90%
Release of Safe Jeonse App Providing Information at Each Contract Stage
[Asia Economy Reporter Cha Wanyong] On the 2nd, the government announced a pan-government-level “Jeonse Fraud Prevention and Victim Support Plan” to block incentives for Jeonse fraud and strengthen support in case of damage. The main points include prevention through return guarantees, support such as easing loan requirements and establishing refinancing for affected tenants, and strong crackdown and punishment for participants. Considering that the government has previously introduced various measures mostly focused on post-incident responses, this new plan is evaluated as a significant advancement by adding a preventive nature.
Blocking Price Inflation and Managing Mandatory Rental Guarantees
The Ministry of Land, Infrastructure and Transport will lower the guarantee target Jeonse rate from 100% to 90% starting this May. This is a measure to eradicate zero-capital gap investment. Previously, the Korea Housing & Urban Guarantee Corporation (HUG) allowed Jeonse deposit return guarantees up to 100% of the sale price. However, this was exploited in cases such as zero-capital gap investments by malicious landlords and brokerage firms inducing “empty Jeonse” contracts.
To protect tenants who have already signed contracts, a grace period will be provided (usually 2-3 months from contract signing to final payment), and the new rule will apply to existing guarantee renewal targets starting January 2024. To ensure sufficient guarantees for sound Jeonse contracts, the discount on guarantee fees for low-income tenants will be expanded from 50% to 60%, and expansion of the guarantee base such as increasing capital contributions and guarantee multiples will also be considered.
Measures to prevent abuse of the guarantee system through price inflation by appraisers will also be promoted. From February next year, appraisals will only be applied when there are no publicly announced prices or actual transaction prices, and only appraisals from corporations recommended by the association will be recognized.
Management of mandatory rental guarantees for registered rental business operators will be strengthened. Many cases have been confirmed where registered rental business operators abused the mandatory guarantee subscription system to reassure tenants that there was no risk of non-return of priority deposits, but in reality, signed “empty Jeonse” contracts without subscribing to guarantees.
Registration will only be allowed if the tenant’s residence is covered by a guarantee (amendment proposed in February 2023), and vacancies will be allowed to subscribe after registration; if not subscribed, tenants will be notified to terminate the contract and pay penalties. Furthermore, rental business operators whose registration is canceled due to non-subscription will be restricted from additional rental housing registrations.
Information provision at each contract stage to reduce information asymmetry for tenants will also be implemented. Until now, newly built villas mainly sought by young people and newlyweds lacked market price information, making pre-diagnosis of Jeonse fraud risks difficult. In particular, houses of malicious landlords with a history of non-return of deposits cannot be guaranteed, but tenants could not know this before signing contracts, creating a blind spot in deposit protection.
Accordingly, HUG’s “Safe Jeonse App” will conveniently provide consolidated information for pre-diagnosis of Jeonse fraud risks, including market prices of new villas, information on malicious landlords, and tax delinquency information.
Even after contract signing, to ensure safe protection of deposits, the project to have banks verify fixed dates before proceeding with mortgage loan screening will be expanded, and a special clause allowing contract termination if a mortgage is set before securing the tenant’s priority rights will be reflected in the brokerage universal contract form.
To enable licensed real estate agents to play a key role as real estate contract experts in preventing Jeonse fraud, their authority and responsibility will be strengthened. Agents will be able to check landlords’ credit information such as tax and interest delinquencies and review priority rights and resident household registrations of the property.
“One-Strike-Out” for Licensed Real Estate Agents Involved in Fraud
Crackdown and punishment for Jeonse fraud will also be strengthened. The Ministry of Land will conduct continuous pre-monitoring and investigation of suspicious transactions such as large-scale short-term housing acquisitions, and notify related agencies such as the National Police Agency to strictly punish confirmed violations.
To block suspicious Jeonse fraud listings promoted online, the Real Estate Advertising Market Surveillance Center (Korea Internet Advertising Foundation) will operate an intensive reporting period until June 30, and will request investigations monthly upon discovering violations to expel unqualified persons’ false or exaggerated advertisements.
In particular, strong punishment will be pursued for licensed real estate agents and appraisers involved in Jeonse fraud, and a full investigation will be conducted on suspected cases. The “one-strike-out” rule for agents involved in fraud will be expanded, and a cap on hiring brokerage assistants will also be introduced.
To eradicate Jeonse fraud, the special crackdown cooperation among the Ministry of Land, prosecutors, and police will be extended for six months. Since July last year, the pan-government joint special crackdown period has uncovered a total of 618 Jeonse fraud cases (1,941 arrests and 168 detentions).
The government plans to complete follow-up measures of this Jeonse Fraud Prevention and Victim Support Plan, jointly prepared by related ministries, as soon as possible. Government-level measures such as expanding the Safe Jeonse App functions and preventing abuse of the guarantee system will be initiated immediately, and tasks requiring legal amendments such as public disclosure of bad landlords will be actively coordinated with the National Assembly to complete legislative actions.
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