[Real Estate AtoZ] "Deposit Under 10%"... Jeonse Transactions Receiving Interim Payments?

Request for Interim Payment as a Condition for Move-in Adjustment
Lowering Interest Burden on Jeonse Move-out Loans
Covering Delayed Balance Payment Interest for Move-in Transactions
Impact of Tenant-centered Market Formation

#Last January, the head of real estate agency A in Gangdong-gu, Seoul, brokered a jeonse contract for an apartment with a deposit worth 700 million KRW. The condition was that the tenant would delay moving in by about 20 days in exchange for paying a contract deposit of 70 million KRW and an interim payment of 50 million KRW. The tenant, scheduled to move in at the end of March, paid the contract deposit in January and transferred the 50 million KRW interim jeonse payment this month.

Cases of receiving interim payments during jeonse contracts are increasingly appearing. The emergence of interim payments, which were previously only exchanged in real estate sales transactions, is analyzed as a result of landlords wanting to secure funds as soon as possible in exchange for accommodating tenants’ convenience, such as moving dates.

A real estate agency office in downtown Seoul. Photo by Yonhap News

According to the real estate information industry on the 10th, it has been confirmed that recently, among landlords with insufficient funds, cases of demanding interim payments from tenants during jeonse contracts have occurred. Although estimates vary by information providers, it is estimated that about 10-30% of all transactions involve receiving interim jeonse payments.

When the move-in date must be postponed at the tenant’s request before a new jeonse contract, landlords who lack a lump sum must return the existing tenant’s jeonse deposit through a jeonse move-out loan. Receiving an interim payment in advance can reduce the interest burden on the loan, leading landlords to demand interim payments.

The head of real estate agency A in Gangdong-gu explained, "If the landlord has to return the jeonse deposit to the current tenant in two months but the new tenant wants to move in three months later, the contract is made on the condition of paying an interim payment. From the landlord’s perspective, it is regrettable to lose the new tenant, so they demand an interim payment to at least reduce the interest burden on the jeonse move-out loan."

The size of the interim payment is usually set at less than 10% of the jeonse deposit. The agency head said, "The amount of the interim payment is adjusted through negotiation between the tenant and landlord, but many cases are around 10%, which is not a heavy burden even without taking out a jeonse loan. These contracts are mainly made with newlyweds switching from monthly rent to jeonse."

In cases where the tenant must pay the balance with the jeonse deposit, if the tenant’s move-in is delayed at their request, there are also cases where interim payments are demanded. A real estate industry insider said, "If the tenant’s move-in is later than the date the buyer must pay the balance, the tenant pays interim jeonse to cover the interest on the delayed balance payment. The tenant bears one month’s interest on behalf of the buyer."

The industry views these transactions as breaking past customs in the process of landlords seeking ways to minimize losses. The agency head said, "Landlords have found a way to reduce loan interest burdens while leaving room to negotiate with tenants."

There is also an analysis that this phenomenon arose due to a decrease in preference for jeonse compared to monthly rent. As tenants increasingly prefer monthly rent due to high interest loan burdens and concerns about jeonse fraud, landlords are changing transaction forms to accommodate their convenience. Yoon Soo-min, a real estate specialist at NH Nonghyup Bank, explained, "Compared to the past, jeonse demand has decreased, creating a tenant-favorable market. Landlords try to increase contract stability by accepting tenants’ demands in exchange for requiring interim payments."