Why You Need to Act Quickly for Jeonse Moves [Real Estate Wealth Flipping]

Decrease in Jeonse Supply, Recovery of Real Purchasing Power, and Upward Outlook

July Approaches as Contract Renewal Request Rights Expire

Tenants with Expiring or New Contracts Should Hurry to Move

Recently, the atmosphere in the Seoul apartment jeonse market has been unusual. While apartment prices are falling, jeonse prices are rising in line with the spring moving season.

According to KB Real Estate's February housing price trend, Seoul apartment jeonse prices rose by 0.28%. This marks seven consecutive months of increase since August last year. In Seoul, major apartment-dense areas such as Gwanak-gu (0.95%), Mapo-gu (0.63%), Dongjak-gu (0.54%), and Yangcheon-gu (0.47%) showed notable increases. Jeonse prices for apartments in Gyeonggi-do also rose by 0.21% last month, continuing a seven-month upward trend. In Incheon, where apartment jeonse prices had been declining until January, the trend reversed to an increase of 0.30% last month.

▲Lee Jong-ah, Head of KB Real Estate Big Data Center, KB Kookmin Bank

Although jeonse prices for apartments in the metropolitan area are fluctuating, future outlooks differ. KB Financial Group's Management Research Institute forecasted in a real estate report released this month that "due to the preference for apartments and a decrease in move-in supply, jeonse prices will continue to rise mainly in metropolitan area apartments." On the other hand, some analysts argue that this is a temporary phenomenon, as the high interest rates have caused apartment sale prices to fall, leading many to live on jeonse while observing the market atmosphere.

In this situation, three indicators should be examined: purchasing power, supply and demand, and outlook. Real purchasing power can be confirmed through the trend of household surplus, which is an indicator of household income changes and actual purchasing power. Household surplus refers to the money left after households pay taxes, quasi-tax expenditures such as national pension, loan interest, and consumption expenses like food costs?in other words, the disposable money remaining after deducting monthly household expenses.

According to the Statistics Korea Household Trend Survey, the average monthly surplus of jeonse households based on urban workers over the past five years was 1,190,514 won in 2019, 1,519,680 won in 2020, 1,498,085 won in 2021, 1,426,541 won in 2022, and 1,403,620 won in 2023. Although the surplus has decreased since 2021, the rate of change slowed with -4.78% in 2022 and -1.84% in 2023. If interest rates are lowered within the year, there is a possibility that the real purchasing power of jeonse households will recover due to reduced interest costs.

Next, the trend of the jeonse supply-demand index should be examined. This is a sentiment index published monthly by KB Kookmin Bank based on surveys of real estate agents, indicating the level of jeonse supply compared to demand and serving as a leading indicator of market sentiment. The amount of jeonse listings is categorized as 'shortage,' 'adequate,' or 'sufficient,' with values above 100 indicating a higher proportion of 'supply shortage.' Last month, Seoul's jeonse supply-demand index recorded 120.5. Compared to 51.1 in February last year, this shows a shortage of listings relative to demand.

The Seoul apartment jeonse price outlook index also turned upward since July last year. Last month, KB Real Estate's Seoul apartment jeonse price outlook index recorded 106.3.

Government policies should also be considered. Recently, the application of the total debt service ratio (DSR) regulation on jeonse loan repayments was postponed. With jeonse loans excluded from DSR calculations, liquidity in the market is expected to improve for the time being.

In July this year, the expiration of the contract renewal right introduced by the 2020 Lease 3 Act will arrive. This is when the jeonse contracts, which had been locked for four years by adding two years to the original two-year term, will be released. At this time, landlords may raise jeonse deposits when signing new contracts in anticipation of not being able to increase rent for four years. For these reasons, if you plan to enter the jeonse market this year, it may be advantageous to act faster than others.

<Jong-A Lee, Head of KB Kookmin Bank KB Real Estate Big Data Center>