[Column] Government Plans to Secure Jeonse through Purchased Rental Housing

Seoul apartment jeonse prices continue to rise day by day. According to the Korea Real Estate Board, Seoul apartment jeonse prices have been increasing for 64 consecutive weeks.

Real estate experts and officials from the Ministry of Land, Infrastructure and Transport analyze the apartment concentration phenomenon as the cause. People who were looking for jeonse in non-apartment housing such as villas turned to apartment jeonse due to concerns about jeonse fraud, which caused the jeonse prices to rise.

The recently announced '8·8 Real Estate Supply Plan' includes measures to respond to this demand. The Ministry of Land stated that it will supply 110,000 purchased rental units in the metropolitan area by 2028. In Seoul, purchased rentals will be provided without restrictions on period or quantity. Purchased rental is a system where the Korea Land and Housing Corporation (LH) buys non-apartment housing such as villas and provides them as public rental housing. Since LH is the landlord of these houses, tenants do not have to worry about jeonse fraud. If the analysis that people who intended to live in non-apartments flocked to apartments causing jeonse prices to rise is accurate, the Ministry’s measures will be effective.

However, there is another 'hidden obstacle' to the rise in jeonse prices. Besides the apartment concentration phenomenon, there is a high possibility that jeonse prices will rise as those who intended to buy apartments turn to jeonse. Recently, those who wanted to buy houses are also looking into the jeonse market due to the rising house prices in Seoul. Apartment prices have risen to about 96% of their previous peak (Real Estate R114), making it difficult to buy houses easily. Those who wanted to buy houses either wait for prices to fall, buy apartments in cheaper areas than they initially considered, or continue living on jeonse.

This is also confirmed by data. According to the Seoul Real Estate Information Plaza, the proportion of apartment transactions in 'Nodogang (Nowon, Dobong, Gangbuk)' increased from 9.6% in June to 12.6% last month. Meanwhile, the Gangnam 3 districts (Gangnam, Seocho, Songpa) decreased from 20.0% to 13.6%, and 'Mayongseong (Mapo, Yongsan, Seongdong)' dropped from 16.4% to 11.1% during the same period.

Unlike those who try to buy in cheaper areas, people who need to live in the Gangnam 3 districts and Mayongseong have no choice but to rent jeonse for now. Ham Young-jin, head of the Real Estate Research Lab at Woori Bank, said, "Prices have risen enough that people find it difficult to buy houses recklessly," adding, "While they watch house prices, they may turn their attention to jeonse rather than purchase." Especially since the recent Seoul real estate market is centered on actual demand, those looking for apartments either buy houses or flock to jeonse.

In this situation, can those who have been focused only on apartments move into villas? For them, the concern is whether to rent or buy an apartment, and purchased rental housing is out of their interest. The Ministry of Land said it will also buy some apartments as purchased rentals and convert them to sale after six years of residence. However, this too is unlikely to attract their attention.

The conversion of purchase demand to jeonse can be a catalyst for jeonse price increases, and as a result, house prices may rise further. The government’s increase in purchased rentals as a solution to the apartment concentration phenomenon will have some effect in alleviating the concentration. However, increasing purchased rentals alone cannot prevent existing purchase demanders from flocking to the jeonse market.