"Jeonse Listings Dry Up" Ordinary Citizens Pushed to Monthly Rent... Surge in Small Apartment Monthly Rentals After June 27 Measures [Real Estate AtoZ]

Impact of Loan Regulations:
Small Apartment Monthly Rent Share in Seoul Rises by 2.7 Percentage Points in July
Increase Outpaces Overall Apartment Market, Driven by Reduced Jeonse Loan Limits and Supply Shortages

Apartment complex in downtown Seoul. Photo by Yonhap News Agency

Roughly two months after the June 27 loan regulations were implemented, there has been a significant increase in monthly rental contracts for small apartments. This trend is attributed to a reduction in the limit for jeonse (lump-sum deposit lease) loans, which has restricted tenants' options, and a virtual ban on gap investment (purchasing with a tenant in place), which has led to a depletion of available listings. There are growing concerns that these loan regulations are increasing the housing burden for ordinary citizens, highlighting the need for countermeasures.

According to the Ministry of Land, Infrastructure and Transport's public transaction price system on September 3, the proportion of monthly rental contracts among lease transactions for small apartments (with a floor area of 60 square meters or less) in Seoul reached 54.5% in July. This figure represents a 2.7 percentage point increase compared to the previous month’s 51.8%.

The share of monthly rentals for small apartments was also recorded at 50.0% last month. Given that the reporting deadline for housing lease contracts is within 30 days of signing and the data collection is not yet complete, this proportion is expected to rise further compared to July.

Due to the loan regulations, the limit for jeonse loans in the Seoul metropolitan area has been reduced, resulting in a higher proportion of monthly rentals. As jeonse prices have not fallen but available funds have decreased, more people are opting for monthly rent. Under the June 27 policy, the limit for the "Buttress" jeonse loan for young adults was reduced from 200 million won to 150 million won, and the limit for newlywed couples was lowered from 300 million won to 250 million won. The reduction of the Housing and Urban Guarantee Corporation’s (HUG) jeonse loan guarantee ratio from 90% to 80% in the metropolitan area has also become a barrier.

The regulation requiring residents to report their move-in within six months when taking out a mortgage loan has also contributed to the increase in demand for monthly rentals. This rule has made it more difficult to purchase a home with an existing jeonse tenant or to lease out a newly purchased property on a jeonse basis. As a result, the supply of jeonse properties generated by gap investments has diminished, leading to a shortage of jeonse listings overall.

In particular, the proportion of monthly rentals for small apartments has increased much more than for other apartment sizes. The share of monthly rentals among all apartment lease transactions in Seoul rose by 1.6 percentage points from 42.3% in June to 43.9% in July, before and after the regulations. For large apartments with a floor area exceeding 135 square meters, the proportion of monthly rental contracts increased only slightly, from 37.2% in June to 38.3% in July, a gain of just 1.1 percentage points.

There are concerns that these loan regulations are having the greatest impact on low- and middle-income households who lack capital and must rely on loans to secure jeonse deposits. Yoon Sumin, a real estate expert at NH Nonghyup Bank, explained, "The demand for jeonse in small apartments is mainly from those with limited capital, so their reliance on loans is inevitably high, making them directly affected by these regulations. In terms of age groups, this mainly applies to young adults." He added, "In particular, the 10 percentage point reduction in the jeonse loan guarantee ratio and the more conservative loan screening process are clearly resulting in more people switching to monthly rentals."