'House Price at 93 Million Won, Jeonse Over 100 Million'... Incheon Becomes a 'Kkangtong Jeonse Time Bomb'

'Kkangtong Jeonse' Scattered Across Michuhol-gu, Incheon
Incheon Villa Jeonse Rate Reaches Up to 92%
Concerns Over Deposit Accidents Lead to 5-Fold Increase in Lease Registration Within a Year

Two years ago, Incheon, which recorded the highest nationwide house price increase rate, has transformed into a minefield of 'empty shell jeonse' (gwangtong jeonse). Amid severe damage caused by jeonse fraud, cases where jeonse prices are higher than sale prices have recently occurred in various places, raising concerns that the scale of damage will increase further in the future.

Amid recent deaths of three victims of jeonse fraud in Incheon, on the morning of the 18th, banners expressing grievances were hung on the windows of apartments belonging to jeonse fraud victims in Michuhol-gu, Incheon.
[Image source=Yonhap News]

According to the Ministry of Land, Infrastructure and Transport's real transaction price disclosure system on the 21st, a jeonse contract for a 67㎡ unit at Jooan Station Shinil Happy Tree in Jooan-dong, Michuhol-gu, Incheon, was signed on the 12th for 300 million KRW. This is only 26 million KRW cheaper than the sale price of 326 million KRW in February.

There was even a case where the jeonse price exceeded the sale price. A 45㎡ jeonse property at Seokam 2nd Complex in Jooan-dong, Michuhol-gu, was traded for 108 million KRW on the 6th of last month, which is 15 million KRW more expensive than the sale price of 93 million KRW in December last year.

In particular, Incheon is evaluated as vulnerable to guarantee accidents due to its high jeonse price ratio, which means the ratio of jeonse price to sale price. A guarantee accident refers to cases where a tenant does not receive the jeonse deposit back within one month after the termination or expiration of the jeonse contract without justifiable reasons, or when an auction or public sale occurs during the jeonse contract period and the guarantee creditor does not receive the jeonse deposit after distribution.

According to a recent report published by KB Financial Group Management Research Institute, the jeonse price ratio of villas in Michuhol, Seo, Namdong, Bupyeong, Yeonsu, and Jung-gu in Incheon reached 81-92%. Especially in Michuhol-gu, Incheon, where three victims of jeonse fraud committed extreme acts consecutively, the jeonse price ratio approached 92%. Typically, during a real estate boom, sale prices rise, so landlords have the capacity to return deposits. However, if sale prices fall sharply and jeonse prices approach or surpass sale prices, the risk of landlords withholding deposits increases. KB Financial Group Management Research Institute predicted, "This year, when the leases signed after the jeonse price surge in 2021 expire, issues regarding deposit returns during lease renewals will increase."

The problem is that recent jeonse fraud damage has been concentrated in Incheon, causing significant harm. According to the Korea Real Estate Agency, in February, 89.1% of guarantee accidents, totaling 999 cases, occurred in the metropolitan area, with Incheon accounting for the highest number at 356 cases. Gyeonggi Province had 344 cases, and Seoul had 299 cases. Since these figures are based on people who subscribed to the Housing and Urban Guarantee Corporation (HUG) jeonse deposit insurance, the actual damage scale is estimated to be much larger.

On the morning of the 17th, a notice indicating that the apartment is under investigation for a jeonse fraud case was posted on the front door of an apartment in Michuhol-gu, Incheon, where the deceased victim A, who suffered from jeonse fraud, resided.
[Image source=Yonhap News]

As tenants increasingly fear guarantee accidents, the number of applications for tenant registration orders in this area is also rising. According to the Court Registry Information Plaza, the number of tenant registration order applications for collective buildings in Incheon in the first quarter (January to March) was 1,951 cases. Compared to 390 cases in the first quarter of last year, this is more than a fivefold increase. Tenant registration is a legal measure for tenants who have not received their deposits after the jeonse period ends to protect their rights. It specifies in the registry that there is an unpaid deposit, which is a necessary procedure to claim deposit returns from HUG. Once tenant registration is completed, tenants can maintain the right to receive their deposits even if they move out without receiving them.

Experts advise that although jeonse demand is recovering mainly in apartments due to recent jeonse price declines, the risks of empty shell jeonse and jeonse fraud still require caution. Go Jun-seok, CEO of J.Edu Investment Advisory, said, "Incheon has many old villas awaiting redevelopment, which attracted many gap investment demands. As sale prices have recently fallen, the risk of deposit non-return accidents continues to rise, so caution is necessary in this area."