HUG Guarantee Insurance Subscription Criteria Strengthened
Down to Publicly Announced Price Decline
Lowered Jeonse Deposit Criteria for Guarantee Insurance Subscription
Voices of tenants worried that it might be impossible to subscribe to the Jeonse Deposit Guarantee Insurance from the Housing and Urban Guarantee Corporation (HUG) for villas are growing louder. As villa scams have been rampant, the government strengthened the subscription requirements for the Jeonse Deposit Return Guarantee Insurance, and the official property prices used to calculate the upper limit of the subscription criteria have significantly dropped, resulting in changes to the subscription standards for the Jeonse Deposit Return Guarantee Insurance.
According to an analysis by the real estate brokerage firm 'Jiptos' on the 2nd, assuming that the official property prices fall by 10% from the current level, it is predicted that 71% of villa Jeonse contracts expiring in the second half of this year will be unable to subscribe to the Jeonse Deposit Return Guarantee Insurance with the same Jeonse deposit as before. Considering that the average official price of villas has dropped by 6%, the rate of contracts that cannot be renewed is expected to exceed 60%.
This is interpreted as a result of the government recently tightening regulations related to HUG's Jeonse Deposit Return Guarantee Insurance subscriptions and the significant decline in official property prices. Previously, as Jeonse scams exploiting the Jeonse Deposit Return Guarantee Insurance surged, the government set the villa market price standard at 140% of the official price instead of the recent sale price and revised the related regulations from May so that only if the ratio of Jeonse price to sale price is within 90% can one subscribe to HUG's Jeonse Deposit Return Guarantee Insurance. Accordingly, while previously it was possible to subscribe to the return guarantee insurance if the Jeonse price was 150% of the official price, now it must be around 126% of the official price to subscribe to the return guarantee product.
The official property prices of multi-family housing used to calculate the subscription criteria have also significantly declined. Applying the lowered official price, for a villa with an official price of 100 million KRW last year and a 6% reduction this year, the Jeonse deposit limit will decrease from 140 million KRW to 118.44 million KRW after May. Considering the recent surge in Jeonse scams and the atmosphere where tenants are carefully checking whether they can subscribe to the Jeonse Deposit Return Guarantee, Jeonse prices for previously traded properties inevitably have to be lowered.
Moreover, even assuming that landlords lower the deposit to attract tenants, a situation may arise where they cannot immediately return the deposit to the current tenants. According to the 'Status of Guarantee Accidents of Registered Rental Business Operators' submitted to the office of Hong Gi-won, a member of the Democratic Party of Korea, there were a total of 221 Jeonse guarantee accidents involving individual rental business operators from January this year to the end of last month. This is a staggering 221 times increase compared to the same period last year (1 case).
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