[Inside Chodong] Reverse Jeonse, Empty Properties, Jeonse Fraud... Tailored Strategies Needed

Mr. Park, who owned five residential properties (two apartments, one officetel, and two villas) in Incheon and Dongtan, seemed to have succeeded in real estate investment by effectively utilizing an investment of 50 million KRW, low-interest loans in the 1% range, and the rapid rise in jeonse prices.

However, since the real estate market downturn began last year, he started disposing of his properties. As sale prices fell, he faced a situation known as ‘reverse jeonse,’ and eventually had to sell the apartment and officetel?where tenants demanded the return of their deposits?at a quick sale price. The two villas he owns, excluding the apartment he currently resides in, remain unsold and are also currently reverse jeonse properties.

Mr. Park’s case differs from the ‘empty jeonse’ problem currently occurring in areas like Gangseo-gu in Seoul and Michuhol-gu in Incheon. The reverse jeonse he is experiencing refers to a temporary difficulty in returning the jeonse deposit when the lease period ends amid falling jeonse prices.

On the other hand, empty jeonse refers to properties where the sale price has dropped below the jeonse deposit, making it impossible for tenants to fully recover their deposits, or properties at risk of this happening. It also includes cases where the property is auctioned off due to the landlord’s default on debt, and the winning bid price falls short of the jeonse deposit.

Going further, if Mr. Park had deceived tenants with the intent to embezzle the jeonse deposit, making it impossible or difficult for tenants to recover their deposits, this would be considered ‘jeonse fraud.’ In other words, if there is deception (fraud) of tenants in empty jeonse cases, it constitutes jeonse fraud. However, distinguishing whether a problematic property is reverse jeonse, an empty property, or jeonse fraud before the incident occurs is not easy. All depend on the landlord’s financial status and decision-making.

In cases like the ‘Construction King’ incident in Michuhol-gu, Incheon, where new properties with senior mortgages were leased as jeonse and tenants were deceived into believing there would be no problem recovering their deposits, it is a clear case of jeonse fraud. Nevertheless, it took more than three years from the time of the fraud accusation to bring the case to trial.

The biggest problem is that the government has not grasped the current status of reverse jeonse, empty properties, and jeonse fraud. There are no accurate statistics on reverse jeonse. The closest data is a recent survey by the Korea Real Estate Board on apartments with a jeonse price ratio of 80% or higher from January to March this year. Even this data does not cover metropolitan cities, provinces, or basic local governments. In particular, there has been no investigation into villas, which are noted as hotbeds for reverse jeonse, empty properties, and jeonse fraud.

The situation is similar for understanding empty jeonse. While the number and amount of jeonse deposit return guarantee insurance issued by the Housing and Urban Guarantee Corporation (HUG) and the jeonse deposit credit guarantee products from Seoul Guarantee Insurance (SGI), as well as the scale of guarantee incidents, are tracked, only about 20% of all lease contracts are covered by guarantee insurance. Therefore, it is difficult to assess the overall status of empty jeonse based solely on guarantee incident data.

Determining whether jeonse fraud has occurred is even more ambiguous. It is difficult to prove intentional contracts made for fraud, false information provided to tenants, or concealment of the truth.

Of course, the government is working tirelessly with related agencies to prepare countermeasures against empty jeonse and jeonse fraud damages. However, before this, distinguishing between reverse jeonse, empty properties, and jeonse fraud and establishing tailored strategies for each is necessary to develop fundamental solutions.