[Jeonse Crisis] ③ Heated Debate on Abolishing Jeonse... "Housing Ladder" vs "Its Time Has Passed"

Unique Lease System Only in Korea
"Minimizing Damage Is More Important Than Promoting Jeonse"
"Artificial Elimination Increases Housing Cost Burden"

Jeonse is called ‘jeonse’ even in English. It is a unique lease system found only in Korea. It has become a core housing form as the interests of landlords who need a large sum of money and tenants who want to avoid monthly rent burdens align.

However, recently, issues such as jeonse fraud, empty jeonse, and reverse jeonse crises have sparked debates about abolishing the jeonse system. Even Won Hee-ryong, the Minister of Land, Infrastructure and Transport who oversees housing policy, recently stated, "The jeonse system has reached the end of its life," hinting at a complete overhaul of the system.

Minister of Land, Infrastructure and Transport Won Hee-ryong is responding to questions from lawmakers at the Land, Infrastructure and Transport Committee plenary session held at the National Assembly. [Image source=Yonhap News]

Chae Sang-wook, CEO of Connected Ground, who advocates for the abolition of jeonse, said, "The government’s promotion of jeonse through guarantee insurance has expanded the market, which in turn has increased the number of victims of jeonse fraud and reverse jeonse," adding, "Rather than fostering jeonse, it is more important to prevent damage, so the limit of jeonse guarantee insurance should be drastically lowered to allow the market to naturally phase it out."

However, there is an opinion that it is practically impossible to eliminate jeonse, which is a major part of the real estate market and accounts for half of the lease market. Lee Eun-hyung, a research fellow at the Korea Institute of Construction Policy, pointed out, "Arguments that jeonse should disappear based on jeonse fraud or reverse jeonse, and that monthly rent should become the norm like in advanced countries, are unreasonable." He added, "Jeonse works in the market because many tenants find it advantageous. Artificially controlling a system with demand could worsen citizens’ housing burdens."

Recently, issues such as jeonse fraud, empty jeonse, and reverse jeonse crisis have sparked a debate on abolishing the jeonse system. [Image source=Pixabay]

Therefore, voices are emerging that while maintaining the jeonse system itself, its loopholes that produce many victims should be addressed. Ham Young-jin, head of the Zigbang Big Data Lab, said, "Last year, the total amount of jeonse deposits exceeded 200 trillion won, but landlords do not have the capacity to return all of it," adding, "Rather than simply abolishing it, the system causing pain through gap investment without capital and non-return of deposits should be fixed."

Minister Won also stated that he would pursue a gradual reform of jeonse after his ‘jeonse lifespan’ remark caused controversy. Measures such as prioritizing senior deposits and limiting deposits when there are mortgages or existing debts are being proposed. He drew a line on introducing escrow. Escrow is a method where tenants deposit the jeonse deposit to a third party (such as a trust company or guarantee institution), which holds part of the deposit and gives the rest to the landlord.

Song Seung-hyun, CEO of City and Economy, said, "The jeonse system became established because of market incentives like jeonse loans," advising, "Since jeonse fraud and reverse jeonse cannot be ignored, the jeonse loan guarantee ratio, currently around 90-100%, should be lowered to the 2008 level (about 60%)."