"Before the Jeonse Cliff"... Loan Regulations Drive Surge in Jeonse Contract Renewals

Renewal Contracts Rise by 4.9 Percentage Points Compared to Previous Month (July 1-16)
Proportion of Renewals Also Increases in Row Houses and Multiplex Housing

A panoramic view of apartment complexes in downtown Seoul as seen from Namsan, Seoul

Since the implementation of the June 27 loan restrictions, the proportion of lease contract renewals has increased in Seoul apartment rental transactions. This trend is attributed to the housing mortgage loan limit in the Seoul metropolitan area being capped at 600 million won, which has led more people to renew their contracts for their existing rental apartments instead of moving.

According to the Ministry of Land, Infrastructure and Transport's real transaction price disclosure system, from July 1 to 16, 42.1% of Seoul apartment rental transactions were contract renewals. This figure is 4.9 percentage points higher than the 37.2% recorded during the same period in the previous month.

The proportion of contract renewals in Seoul apartment rental transactions has continued to rise since the beginning of this year. After recording 34.2% in January, it climbed to the 38% range in May and surpassed 40% this month. Compared to the figures for July 1-16 in 2024 and 2023, which were 27.5% and 24.5% respectively, the recent proportion of contract renewals has risen significantly.

It is analyzed that more tenants have given up on purchasing homes as loan regulations have reduced the borrowing limit. Additionally, with the introduction of the third phase of the stress-based Debt Service Ratio (DSR) this month, it has become more difficult to buy apartments. In particular, the new requirement to move in within six months of purchasing a home has effectively blocked 'gap investment.' As concerns have arisen that this could lead to a shortage of jeonse (long-term deposit lease) supply, many have rushed to renew their jeonse contracts.

The increase in contract renewals is not limited to apartments; it has also been observed in Seoul's row houses and multiplex housing. From July 1 to 16, the proportion of contract renewals was 32.5%, which is a 3.5 percentage point increase from 29.0% during the same period in the previous month.

Kim Hyosun, Chief Real Estate Specialist at NH Nonghyup Bank, explained, "Because the rental market is unstable, there seems to be a wait-and-see attitude where people are renewing their contracts for now and watching the market to develop their housing strategies."

Experts predict that this trend is likely to continue for some time. If jeonse costs rise, households with weaker financial resources will inevitably move to the monthly rent market, and as demand increases, monthly rent prices may also rise. As a result, there is an expectation that an atmosphere of contract renewals will spread throughout the entire jeonse and monthly rent market.

Yoon Sumin, Real Estate Specialist at NH Nonghyup Bank, said, "If we consider that the option of buying a home has disappeared for current tenants, renewing a jeonse contract is the best action that can be taken with less cost," adding, "With significant uncertainty in real estate policy, more tenants are deciding to renew their contracts and wait another two years."