"Pushed Into Monthly Rentals"... Soaring Renewals and a Dried-Up Jeonse Market as Gap Investments Blocked [Real Estate A to Z]

From October 20, All of Seoul Designated as Land Transaction Permission Zone
Mandatory Owner-Occupation for Home Buyers
Jeonse Supply Shrinks Due to Ban on Gap Investment
Increasing Use of Lease Renewal Rights

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

"Currently, there are no jeonse (lump-sum deposit lease) listings available; only semi-jeonse or monthly rentals are on the market. Because many people are either renewing their contracts or exercising their right to request a lease renewal, there are hardly any new listings." (Real estate agent A in Yonggang-dong, Mapo-gu, Seoul)

"Due to the October 15 real estate measures, which have blocked gap investments (buying with a jeonse tenant in place), there are growing concerns that the supply of jeonse properties may decrease. Whenever a listing appears, it is immediately contracted." (Real estate agent B in Sangdo-dong, Dongjak-gu)

As of October 20, with all of Seoul and major areas in Gyeonggi Province designated as Land Transaction Permission Zones, the shortage of jeonse properties is expected to accelerate. When purchasing a home, buyers must now reside in it themselves, leading to a sharp reduction in jeonse supply resulting from gap investments. As supply decreases, jeonse prices are expected to rise. There are growing concerns that ordinary people unable to afford the higher jeonse deposits will be pushed into the monthly rental market, further aggravating housing instability.

Real estate agencies in Mapo-gu, Dongjak-gu, and Seongdong-gu, Seoul, report that demand for jeonse is high during the autumn moving season. With the expansion of Land Transaction Permission Zones and the implementation of the October 15 measures, they anticipate jeonse prices will rise. When an area is designated as a Land Transaction Permission Zone, apartments and other homes can only be purchased for actual residence. This means that newly purchased apartments cannot be offered as jeonse rentals, leading to a decrease in available jeonse properties. Following the designation of Gangnam’s three districts and Yongsan-gu, the expansion of these zones to cover all of Seoul is expected to spread the jeonse shortage to a wider range of areas.

The new regulations have also reduced the limit for jeonse loans, which is expected to further accelerate the shift toward monthly rentals. With the designation of Adjustment Target Areas and Speculative Overheating Districts, the jeonse loan limit for single-home owners has been capped at 200 million won, and the loan guarantee ratio has been lowered by 10 percentage points, from 90% to 80%.

As instability in the rental market grows, more tenants are seeking to exercise their right to request lease renewal. This allows them to extend their contracts while limiting the increase in deposit or monthly rent to 5%. From January to September this year, there were 36,851 requests for lease renewal for Seoul apartments, a 2.3-fold increase compared to 16,136 during the same period last year.

In addition, many tenants are choosing to renew their contracts now, even if it means accepting a higher deposit, in order to save their one-time lease renewal right for the future. With forecasts indicating that only 4,100 new apartment units will be supplied in Seoul next year and just 10,000 units the year after, tenants are preparing to use their renewal right when jeonse prices spike. Kim Hyosun, Chief Real Estate Specialist at NH Nonghyup Bank, explained, "Some people are choosing to renew their contracts and accept higher jeonse deposits now so they can live stably for four years."

With the disappearance of gap investments and the resulting decrease in jeonse supply, more people are expected to be pushed into the monthly rental market. Yoon Sumin, Real Estate Specialist at NH Nonghyup Bank, observed, "Even if gap investments are blocked, it would not be a problem if there were plenty of new apartments in Seoul, but that is not the case. If tenants want to sign a jeonse contract but deposits are rising and there are restrictions on jeonse loans, they have no other choice but to sign semi-jeonse or monthly rental contracts."