Jeonse Fraud → Jeonsephobia... Concerns Over Worsening Reverse Jeonse Crisis in Second Half

Easing of Jeonse Eviction Loan Regulations Proposed... "It Won't Be Easy"

Concerns are growing that the ‘reverse jeonse’ crisis could intensify in the second half of this year due to the real estate market downturn. In particular, the so-called ‘jeonse phobia’ phenomenon, where tenants avoid jeonse contracts due to recent nationwide jeonse fraud cases, is further fueling these worries.

According to the financial sector on the 28th, the outstanding balance of jeonse eviction loans from major commercial banks (KB Kookmin, Shinhan, Hana) as of the end of the first quarter was 14.8738 trillion won. This represents an approximately 2.0% increase compared to the balance at the end of last year.

Jeonse eviction loans are a type of mortgage loan executed to return the deposit when tenants move out. Since the purpose is to return the deposit, the increase in the outstanding balance of jeonse eviction loans indicates that landlords are facing difficulties returning tenant deposits due to falling jeonse prices, signaling a rise in reverse jeonse situations.

Signs of the reverse jeonse crisis are appearing in various places. According to the Court Registry Information Plaza, the number of applications for tenant rights registration orders nationwide in the first quarter (January to March) reached 8,294, an increase of about 340% compared to the previous year. Tenant rights registration is a system designed to protect tenants who have not received their jeonse deposit back from landlords even after the lease period has expired. The increase in tenant rights registrations indicates a rise in disputes related to non-return of jeonse deposits.

The problem is that such reverse jeonse is expected to become more serious starting from the second half of this year. According to the Korea Real Estate Board, the nationwide comprehensive housing jeonse price index was 100 in June 2021, rising to 103.2 in December of the same year and 103.3 in January of the following year. After remaining flat for a while, the jeonse price index began to decline in the second half of last year, falling to 92.4 last month. Considering that jeonse lease contracts are typically made on a two-year basis, it can be interpreted that the jeonse supply from June 2021, when housing and jeonse prices peaked, could become problematic in the second half of this year.

Moreover, concerns are mounting that this phenomenon will worsen as tenants increasingly avoid jeonse due to recent jeonse fraud incidents occurring nationwide. As jeonse prices fall and tenants become more wary of non-returned deposits, they are opting for monthly rent instead of jeonse, which could amplify the ripple effects. Already, the outstanding balance of jeonse loans has decreased by about 6.6 trillion won this year alone.

Kang Min-seok, head of the real estate team at KB Financial Economic Research Institute, said, “As reverse jeonse grows and successive jeonse fraud cases freeze tenants’ sentiment, a vicious cycle related to jeonse is repeating. I believe issues related to non-return of jeonse deposits are likely to expand from the second half of the year.”

Some argue that to ensure a soft landing for the reverse jeonse problem, loan regulations should be further eased. Previously, the government relaxed regulations on jeonse eviction loans by removing the deposit return loan limit applied to apartments over 1.5 billion won in speculative and overheated speculation areas and applying loan-to-value (LTV) limits instead. A financial sector official said, “Currently, the only remaining option is to ease the debt service ratio (DSR) regulations, but considering various side effects, this is not an easy choice.”