[Exclusive] No Safe Zone... 21 out of 25 Autonomous Districts in Seoul Face 'Reverse Jeonse'

[Jeonse Crisis] ① Complete Survey of Largest Apartment Complexes by District
May Jeonse Prices Drop 100 Million to 600 Million KRW Compared to Two Years Ago
Tenants Fear 'Deposit Non-Return' Anxiety

The reverse jeonse phenomenon, once considered a 'safe zone,' has now spread to the Seoul apartment rental market. In May of this year, it was found that the jeonse prices of 21 out of 25 largest apartment complexes by district in Seoul (84%) had fallen compared to two years ago. As the feared reality of reverse jeonse materializes and jeonse prices drop by hundreds of millions of won, tenants' fears of landlords failing to return deposits are growing day by day.

Comprehensive survey of the largest apartment complexes in 25 Seoul districts... 84% show jeonse price decline compared to two years ago

On the 30th, Asia Economy tracked the jeonse prices of the 25 largest apartment complexes by number of households in each Seoul district and found that in May this year, prices were lower than in May 2021 in 21 locations. The districts included were Gangnam, Gangbuk, Gangseo, Gwanak, Gwangjin, Guro, Nowon, Dobong, Dongdaemun, Mapo, Seodaemun, Seocho, Seongdong, Seongbuk, Songpa, Yangcheon, Yeongdeungpo, Yongsan, Eunpyeong, Jongno, and Jung-gu, excluding Gangdong, Geumcheon, Jungnang, and Dongjak-gu.

Apartment complexes in the city viewed from Namsan, Seoul [Image source=Yonhap News]

This means that 84% of the cases fall under reverse jeonse, where landlords owe more money back than they receive from new tenants. The comparison was based on the highest price for the national standard size of 84㎡ exclusive area. For apartments in Geumcheon, Yangcheon, Yongsan, and Eunpyeong districts with no actual transaction in May this year, April transaction prices were used, and for Nowon, where there was no 85㎡ jeonse contract, the 59㎡ transaction price was used for comparison.

The apartment complex with the largest jeonse price drop over two years was Banpo Xi in Seocho-gu, which fell from 2 billion KRW to 1.4 billion KRW, a 600 million KRW (30%) decrease. Guui Hyundai 2nd Complex in Gwangjin-gu dropped from 960 million KRW to 620 million KRW, a 340 million KRW (35.4%) decrease. Eonma Apartment in Gangnam-gu fell from 1 billion KRW to 700 million KRW, a 300 million KRW (30%) drop. Gyeonghuigung Xi 2nd Complex in Jongno-gu also decreased from 1.2 billion KRW to 900 million KRW, a 300 million KRW (25%) decline. Raemian Weave in Dongdaemun-gu dropped from 890 million KRW to 600 million KRW, a 290 million KRW (32.6%) decrease, and SK Bukhan Mountain City in Gangbuk-gu fell from 670 million KRW to 400 million KRW, a 270 million KRW (40.3%) drop.

According to the data, reverse jeonse did not occur in Gangdong-gu's Godeok Gracium, where the highest price in May 2021 was unusually low compared to April and June, and considering the sharp rise in jeonse prices from June to September in Geumcheon-gu's Byeoksan 5th Complex, Dongjak-gu's Shindonga River Park, and Jungnang-gu's Sinnae Desiang Foret, it can be said that reverse jeonse has effectively occurred across all 25 Seoul districts.

Reverse jeonse refers to a situation where jeonse prices fall to the extent that landlords find it difficult to return deposits to existing tenants using only the deposits from new tenants. The spread of reverse jeonse throughout Seoul is due to the rapid rise in jeonse prices over the past two years caused by the new Lease Protection Act, followed by a sharp decline in jeonse prices as domestic tenants avoid jeonse amid high interest rates originating from the U.S. According to the Korea Real Estate Board, as of the fourth week of May, Seoul's jeonse prices have cumulatively fallen by 10.86% this year alone.

If landlords leveraged the high jeonse prices from two years ago for gap investment, tenants may find it difficult to recover deposits reduced by hundreds of millions of won. Tenants who had no choice but to move due to the sharp rise in jeonse prices two years ago are now facing the nightmare of non-returned deposits.

Park Won-gap, Senior Real Estate Specialist at KB Real Estate, said, "Reverse jeonse can be seen as a market indigestion caused by supply exceeding demand in the jeonse market. If landlords who find it difficult to return deposits put their properties on urgent sale, it could pressure the sales market and become a bigger variable in this year's real estate market than interest rates or economic recession."