In the third quarter of this year, the proportion of jeonse (long-term lease) contracts in Seoul apartment rental agreements exceeded 60%. Additionally, while renewal contracts?where tenants sign a new lease with the existing landlord after the rental period ends?increased, the usage rate of the contract renewal right (renewal option) declined.
According to an analysis of Seoul apartment rental contracts reported to the Ministry of Land, Infrastructure and Transport's actual transaction price system on the 15th, the share of jeonse contracts in the third quarter of this year was 62.5%.
The proportion of jeonse transactions for Seoul apartments decreased from 59.4% in the fourth quarter of last year to 58.2% in the first quarter of this year, then rose to 59.7% in the second quarter, and surpassed 60% in the third quarter. This is attributed to increased demand for jeonse as Seoul apartment prices surged, coupled with the fact that commercial bank loan interest rates became lower than the monthly rent conversion rate, leading to more demand for loans to secure jeonse.
The share of renewal contracts accounted for 32.8% of all contracts. The proportion of renewal contracts was 28.2% in the fourth quarter of last year, increased to 31.1% in the first quarter and slightly decreased to 30.8% in the second quarter, before expanding again to 32.8% in the third quarter. This suggests that as jeonse prices rose, more tenants opted for renewal contracts rather than new contracts.
According to the Korea Real Estate Board, Seoul apartment jeonse prices rose by 3.10% as of July this year compared to the end of last year. This contrasts with the approximately 10% (-9.92%) decline in jeonse prices from the end of 2022 to July last year.
In contrast, the usage rate of the renewal option fell below 30% this year, down from 32.1% in the fourth quarter of last year. It recorded 29.5% in the first quarter, and 28.6% and 28.7% in the second and third quarters, respectively. This indicates a decrease in the proportion of tenants using the renewal option when renewing their contracts.
The renewal option can only be used once during the contract period with the same landlord, allowing an additional two years of residence with a rent increase capped at 5%.
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