"Ending Lease Contract on Previous Jeonse House" Sharp Decline in Renewal Requests [Real Estate AtoZ]

Analysis of Seoul Apartment Jeonse Lease Renewal Contracts
Proportion of Renewal Right Usage: 73.6% in H1 2022
35.9% in H1 2023 → 30.9% in H1 2024
More People Buying Existing Jeonse Homes by Increasing Jeonse Prices

#. Han Yong-baek (pseudonym), who lives in Dongjak-gu, Seoul, extended his jeonse lease contract last June without using the contract renewal request right. He renewed the contract for a house he initially rented in June 2022 for 750 million won at a 4% increase to 780 million won. Han said, "I agreed with the landlord to extend the contract without using the contract renewal request right," adding, "I plan to use the contract renewal request right two years later in preparation for further jeonse price increases."

Cases like Han’s, where the contract renewal request right was not used in Seoul apartment jeonse contracts during the first half of this year, have been increasing. However, even without utilizing the contract renewal request right, jeonse prices have risen, according to investigations.

"Decrease in Use of Contract Renewal Request Right"

On the 6th, Asia Economy conducted a full survey of the number of Seoul apartment jeonse lease extension contracts from the first half of 2022 to the first half of 2024 using the Ministry of Land, Infrastructure and Transport’s actual transaction price disclosure system. The number of contracts using the contract renewal request right in the first half of this year was 6,981, accounting for 30.9% of all jeonse lease extension contracts. This figure includes cases where the contract was extended without the renewal request right after it had been used once before.

The proportion of lease extensions without using the contract renewal request right has been steadily decreasing since it was 73.6% in the first half of 2022. It was 35.9% in the first half of last year.

According to the Housing Lease Protection Act, jeonse tenants can exercise the contract renewal request right once for the house they reside in. Landlords cannot refuse this request unless they are moving in themselves or have other valid reasons. When renewing the contract, the jeonse deposit can only be increased by up to 5% of the previous deposit. Even if the tenant has lived in the same house for more than four years and extended the lease multiple times, they can still exercise this right if they have never used it before.

Lee Eun-hyung, a research fellow at the Korea Institute of Construction Policy, explained, "The contract renewal request right was introduced to protect tenants by limiting rent increases when housing prices rise, alongside the jeonse rent cap system. It may not have been necessary to use the contract renewal request right because jeonse prices fell." Jeonse prices in Seoul rose sharply from 2020 to 2021 but began to decline from the first half of 2022. They started rising again from June last year. However, even if jeonse prices increased, they might not have exceeded 5% compared to the previous contract, so there might have been no need to use the contract renewal request right," he said.

"Continuing to Live in Existing Jeonse Homes Even at Higher Prices... Moving Costs and Children's Education Influence"

Although the use of the contract renewal request right has decreased, the deposit amounts for renewed contracts have increased. The number of cases where contracts were extended at a higher deposit than the previous jeonse deposit rose to 10,779 in the first half of this year. This is an increase of more than 2,000 cases compared to around 8,000 cases in the first halves of last year and 2022.

Research fellow Lee said, "In a situation where jeonse prices continue to rise, tenants may have chosen not to use the contract renewal request right, anticipating a significant increase in jeonse prices at the next renewal. Since the current jeonse prices are not much different from the previous ones, tenants might prefer to pay a small difference now and save the contract renewal request right for when market prices rise later."

According to the Korea Real Estate Board, Seoul apartment jeonse prices have been rising for 63 consecutive weeks since the fourth week of May last year. Experts expect this trend to continue. Ko Jong-wan, president of the Korea Asset Management Research Institute, said, "Looking at supply performance such as apartment construction and move-ins in Seoul, supply is insufficient compared to the past. Additionally, expectations of interest rate cuts make it difficult to find reasons for jeonse prices to fall. The upward trend in jeonse prices will continue next year."

Park Won-gap, senior real estate expert at KB Kookmin Bank, said, "When moving to a new jeonse, moving and brokerage fees can total up to 10 million won. Although the increase in jeonse prices for lease extensions varies, assuming a 50 million won increase, the interest on a 50 million won loan at an annual rate of 3% to 4% would be 1.5 to 2 million won per year. It is better to stay in the current home than to move."

Additionally, Kwon Young-sun, a real estate analyst at Shinhan Bank, said, "Jeonse is a real demand, so even if prices rise, tenants may find it difficult to move. Even if the jeonse market price of their current home has increased, some tenants need to extend their contracts due to their children's school districts."