[The Editors' Verdict] The Four-Year Contract Renewal Right Expiry Is Approaching

Will it be possible to continue living in a jeonse house next year? This question lingers in my mind ahead of the nation’s biggest holiday, the Lunar New Year. The landlord’s notice of jeonse price increase is frightening. The jeonse contract expires this August, coinciding with the end of the 4-year (2+2) jeonse contract period under the two lease laws (right to request contract renewal and rent ceiling system). There is a high possibility that the harsh notice from the landlord, who could only raise the rent by 5% through the right to request contract renewal, will come as early as next month.

Jeonse is also slipping away from being a ladder to housing stability for ordinary people. In the past, people could tie up seed money (jeonse deposit) as a deposit and after about 10 years, it was possible to purchase their own home. But now, it is difficult even to keep up with the rising jeonse deposits. The impact of reverse jeonse and jeonse fraud is gradually easing. As of the last week of January, the Seoul apartment jeonse price index (KB Kookmin Bank) recorded a 27-week consecutive rise. Not only in Seoul but also nationwide apartment jeonse prices have risen for more than 25 weeks.

In this situation, the supply of jeonse this year is expected to decrease. The expected number of apartment move-ins in Seoul this year is below 11,000 units. This is 21,000 units less compared to about 32,000 units last year. It is the lowest since 2000 when related statistics began to be compiled (Real Estate R114). Those who bear a heavier jeonse burden than I do are probably young adults starting their careers. According to a recent marriage information company (Gayeon), the average total cost for marriage was 347.24 million KRW, of which 79% was the cost of the newlywed’s home.

A realistic alternative for jeonse tenants like me is monthly rent. It is financially more stable than suddenly preparing a rising deposit. The recent evaluation of jeonse by Park Sang-woo, Minister of Land, Infrastructure and Transport, that "70-80% of the jeonse deposit comes from bank jeonse loans, so paying monthly rent to the bank is almost the same" is quite convincingly accepted.

Those who have been closely watching the aftermath of last year’s jeonse fraud seem to have already entered the world of monthly rent. Seoul villa monthly rent (pure monthly rent + semi-monthly rent + semi-jeonse) rose by 0.03% in December last year (Korea Real Estate Board). It has been rising for six consecutive months since July last year. Seoul apartment monthly rent has also been increasing for seven months.

However, the biggest drawback of monthly rent is housing stability. The contract period is short, and it is difficult to guarantee contract continuity. There is also a perception that it is a housing form for those with insufficient means. Paying monthly rent to the landlord every month and the risk of contract termination if rent is unpaid are also sources of anxiety.

In this regard, the recently announced ‘private sector-led long-term rental housing’ promoted by the government can be an appropriate alternative to jeonse. In particular, Minister Park said that if such a system is introduced, rental fees will be ‘no touch.’ This can be interpreted as allowing the private sector to build rental housing at the level desired by the public while setting reasonable rental fees. This measure considers the fact that the existing label of ‘rental housing’ limits demand from the middle class.

However, it seems physically difficult to introduce new long-term rental housing before the jeonse price shock hits in the second half of this year. Besides this, appropriate measures are needed to disperse jeonse demand. It is a worrying time as more people like me may face these concerns during this year’s Chuseok holiday.