[Jeonse Crisis] ② "Reversed Jeonse Peak at Year-End"... Must Open Exit for Landlords

Seoul Jeonse Prices Peaked in Q3-Q4 2021
"Reverse Jeonse Volume Likely to Expand in Second Half"
Reverse Jeonse May Also Pull Down Market Prices

"Since the jeonse prices peaked at the end of 2021, structurally, a reverse jeonse peak is inevitable by the end of this year." (Chaesangwook, CEO of Connected Ground)

In front of a real estate agency in Seoul [Image source=Yonhap News]

There is a grim forecast that the reverse jeonse crisis, which has just reached Seoul apartments, will surge like a tsunami in the second half of the year. Since the peak of Seoul jeonse prices was concentrated between July and December 2021, the scale of reverse jeonse in the second half of this year, when contracts expire, could become larger. The fact that more than 5,000 households are scheduled to move in June and that the abolition of the mandatory actual transaction reporting is being pushed, potentially increasing jeonse supply, also adds weight to this argument.

On the 30th, Asia Economy tracked the jeonse prices of the 25 largest apartment complexes by number of households in each Seoul district, finding that most peaked in the second half of 2021. Especially, September and October saw the most peaks. In September, Gangseo Hills State in Gangseo-gu (900 million KRW), Gwanak Dream Town in Gwanak-gu (720 million KRW), Shindonga River Park in Dongjak-gu (770 million KRW), and Namsan Town in Jung-gu (850 million KRW) each set new record highs. In October, Raemian Weave in Dongdaemun-gu (900 million KRW), Mapo Raemian Prugio in Mapo-gu (1.17 billion KRW), DMC Parkview Xi in Seodaemun-gu (1.2 billion KRW), Banpo Xi in Seocho-gu (2.2 billion KRW), and Mokdong New Town Complex 14 in Yangcheon-gu (900 million KRW) reached their highest prices.

Experts predict, based on this, that the scale of the reverse jeonse crisis could greatly expand in the second half of this year when these peak contracts expire after two years. Cases where new tenants cannot return the deposits to existing tenants may become widespread. Song Seunghyun, CEO of City and Economy, said, "Considering the jeonse contract cycle, the scale corresponding to reverse jeonse in the second half of this year could greatly expand," adding, "Since jeonse prices have already undergone significant adjustments similar to the sales market, the depth of the jeonse price decline may not deepen, but the breadth of reverse jeonse may widen, increasing the number of victims."

Seoul apartment jeonse prices, as of the fourth week of May, have turned upward for the first time in 16 months, showing signs of stabilization. However, along with the reverse jeonse in the second half, whether the mandatory actual residence obligation for apartments, currently pending in the National Assembly, will be abolished is also expected to be a variable in the jeonse market. If the residence obligation is removed, jeonse supply could increase, applying downward pressure on prices again.

The surge in move-in volume in Seoul next month also raises concerns about instability in the jeonse market. According to Real Estate R114, Seoul's move-in volume, which was zero in May, will increase to 5,118 households in June. Notable complexes preparing for move-in include Nowon Lotte Castle Signature in Sanggye-dong, Nowon-gu (1,163 households) and Cheongnyangni Station Hanyang Sujain 192 in Yongdu-dong, Dongdaemun-gu (1,152 households). Yoon Jihae, head of the research team at Real Estate R114, said, "Since the move-in volume will increase significantly compared to the previous month, the downward pressure on the jeonse market is expected to be considerable," urging, "Preparation for reverse jeonse is necessary."

However, there is also a view that overall, the second half's move-in volume in Seoul will be less than the first half, so it will not pull down jeonse prices. Ham Youngjin, head of the Big Data Lab at Zigbang, explained, "Seoul apartment move-in volume will decrease from 13,578 units in the first half to 9,480 units in the second half this year," adding, "The decline in jeonse prices is expected to lessen."

If the spread of the reverse jeonse crisis in the second half becomes a reality, there are concerns that the Seoul real estate market, which has just escaped the transaction freeze, could tighten again. Since a real estate market slump leads to asset value decline and can shrink the real economy, voices are growing that landlords should be given an exit to stabilize the jeonse market. Yoon said, "With the total debt service ratio (DSR) limited to 40%, rental business operators are restricted by regulations and lack the capacity to return deposits," adding, "It is necessary to raise the ratio for those who cannot return deposits due to liquidity constraints."