Recent 6-Month Increase in Gap Investment Areas
Possibility of Deposit Return Issues Rising if Jeonse Prices Fall Further
Recently, concerns have been raised that the issue of deposit refunds may spread as gap investments have become rampant in areas such as Hwaseong and Pyeongtaek in Gyeonggi Province, Yeonsu District in Incheon, and Sejong City. This is because if a house was purchased through a zero-capital gap investment or if the jeonse price is not significantly different from the sale price, there is a possibility that the deposit cannot be refunded when the jeonse price falls. Experts point out that reckless gap investments require caution as they can potentially exacerbate deposit refund accidents or issues like the current 'jeonse fraud.'
According to the real estate big data platform 'Asil' on the 12th, the region with the highest increase in gap investments over the past six months was Hwaseong City in Gyeonggi Province, where 244 cases, accounting for 6.4% of the total 3,797 sales transactions, were gap investments. For example, a 74㎡ (12th floor) unit in ‘Byeongjeom Station Eduforet’ in Byeongjeom-dong, Hwaseong City, was traded for 300 million KRW in February this year, and the next day a jeonse contract was made for 270 million KRW. The buyer purchased the apartment with only 30 million KRW of their own capital. Gap investment refers to buying a property with a jeonse deposit, and Asil considers a transaction a gap investment if the buyer does not reside in the apartment and signs a new lease contract for rental purposes within three months of purchase.
Following this, Sejong City (190 cases, 8.9%), Pyeongtaek City in Gyeonggi Province (177 cases, 7.0%), Yeonsu District in Incheon (161 cases, 6.9%), Bundang District in Seongnam City, Gyeonggi Province (144 cases, 15.0%), Yeongtong District in Suwon City, Gyeonggi Province (139 cases, 8.3%), and Seobuk District in Cheonan City, Chungnam Province (137 cases, 5.0%) also had many gap investments. In February, a buyer purchased a 25㎡ unit in ‘The Suite Harbor’ in Poseung-eup, Pyeongtaek City, Gyeonggi Province, for 55 million KRW and signed a jeonse contract with a deposit of 70 million KRW. This is a typical example of a ‘zero-capital gap investment.’ Such zero-capital gap investments are a major cause of deposit accidents caused by failure to refund deposits on time.
The characteristics of regions where gap investments have been active over the past six months are that they generate fixed demand from large corporations, industrial complexes, government offices, etc., and are areas where housing prices have recently fallen significantly. Hwaseong City, the top region for gap investments, hosts various manufacturing companies such as Samsung Electronics and Hyundai Kia Motors. The number of factories increased by 41% from 8,228 in 2014 to 11,617 in 2021. Sejong City is a region with steady jeonse demand from government officials due to the relocation of government offices, and Pyeongtaek and Cheonan each have Samsung Electronics semiconductor factories and Samsung Display, respectively.
Park Hapsu, an adjunct professor at Konkuk University Graduate School of Real Estate, said, "Regions where gap investments have been rampant are those with industrial complex workers as the underlying demand. In the case of Bundang District, gap investments seem to have increased due to expectations of future value from the redevelopment project of the first-generation new town, and tenants value the area for its school districts and residential value."
The problem arises if jeonse prices fall further or if the supply of public housing increases. When signing a new lease contract with a new tenant, if the jeonse price has dropped but it becomes difficult to find tenants, there may be difficulties in refunding deposits. The recent reverse jeonse phenomenon intensifying in Gangnam is the result of supply in a large complex approaching 4,000 households. Jeonse prices are also trending downward. According to an analysis by real estate brokerage firm Jiptos of the Ministry of Land, Infrastructure and Transport’s actual transaction prices for jeonse and monthly rent nationwide in the first quarter of this year, 25% of lease renewal contracts were signed at reduced prices compared to previous contracts.
The economic downturn is also a variable. If companies reduce rather than expand employment due to the economic downturn, supply from new complex sales or move-ins will increase slowly, while demand may stagnate or even decrease. Song Seunghyun, CEO of Urban and Economy, said, "In areas with many gap investments, people approach based on price rather than considering regional fundamentals and demand. If price and demand do not support each other, reverse jeonse can occur at any time."
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