Successive Real Estate Policies Accelerate Shift from Jeonse to Monthly Rent... Why Only Hong Kong and U.S. Capital Are Benefiting [Real Estate AtoZ]

Lee Jaemyung Administration's Real Estate Policies Accelerate the Decline of Jeonse
Global Capital from the US, Canada, and Hong Kong Dominate the Corporate Rental Housing Market
Domestic Private Equity Funds Enter the Monthly Rent Market, While Pension Funds Remain Cautious Due to Public Opinion
Monthly Rent Share Surpasses 60%, Seoul Rent Index Hits Record Highs, Market Restructuring Accelerates
Experts Urge Rapid Support for Ordinary Citizens, Including Rent Tax Credits and Vouchers, Warning That Policy Intervention Is Lagging

As the government's successive real estate measures accelerate the shift from jeonse (lump-sum deposit leases) to monthly rent, foreign investment capital is reaping significant benefits. These are companies that entered the private rental market early, anticipating the growth of the monthly rent sector, and have now become direct beneficiaries of the current administration's policies aimed at curbing jeonse demand to stabilize housing prices. These firms have ramped up their investments since the current government took office, making all-out efforts to solidify their positions. With the burden of housing costs on ordinary citizens expected to increase significantly, there are growing calls for urgent measures to stabilize the monthly rent market and ensure housing security.

Perspective view of Mangrove Dangsan, which broke ground on the 22nd. MGRV.

According to the real estate development industry on October 23, just after the government's October 15 policy announcement, Hong Kong-based Asia-Pacific residential specialist WeLiving established a joint venture (JV) for rental housing in Korea with a global institutional investor on October 20. They plan to build a rental housing portfolio worth a total of 635 billion won in the Seoul area. This is the largest-ever investment by foreign capital in Korea’s corporate rental housing market.

This JV has also announced plans for an additional investment of up to 315 billion won. On October 22, domestic real estate developer MGRV broke ground on "Mangrove Dangsan," a rental dormitory with 441 units. This project is part of a 500 billion won JV established in January with the Canada Pension Plan Investment Board (CPPIB).

U.S.-based private equity fund managers such as KKR, Morgan Stanley, Hines, Greystar, Invesco, and M&G Real Estate are also operating corporate rental housing in partnership with local operators. These companies have already secured more than 10,000 monthly rental units and plan to double this volume within five years.

Notably, these companies are expanding beyond simple investment and are entering Korea as operators. The Living Company, Australia’s leading operator managing 35,000 units, officially opened its Seoul office in August, marking its entry into the Korean market.

Domestic capital is also joining the market, albeit belatedly. Leading domestic private equity fund manager Hahn & Company recently acquired management rights of SK D&D. Through DDPS, a subsidiary of SK D&D that operates the corporate rental housing brand "Episode," they are building a rental operation platform. An industry insider commented, "Korea is still accustomed to the jeonse system, so companies have been relatively slow to enter the monthly rent market. In particular, major players in the capital market, such as pension funds, may face criticism for 'profiting from monthly rent' at the expense of the public, making it more difficult for domestic capital to enter the market."

As the government effectively pursues policies that lead to the decline of the jeonse market, large-scale capital is flowing rapidly into the rental sector. The Lee Jaemyung administration's June 27 measure lowered the loan guarantee ratio for jeonse in the Seoul metropolitan area from 90% to 80%. In addition, jeonse loans conditional on the transfer of ownership were banned, effectively blocking gap investment-type jeonse transactions.The October 15 policy expanded land transaction permit zones, introducing a two-year mandatory residence requirement. Further regulations, such as applying the Debt Service Ratio (DSR) to jeonse loans for single-home owners, were also implemented.Recently, Bank of Korea Governor Rhee Changyong remarked, "If we do not reform the jeonse system, leverage will continue to rise," and emphasized that "it is time to make a break, even if it is painful," confirming this policy shift.

Landlords are already shifting to stable monthly rent. Tenants, facing higher barriers to borrowing, are left with no choice but to opt for monthly rent. According to housing statistics from the Ministry of Land, Infrastructure and Transport, the proportion of monthly rent contracts among lease agreements averaged 62.2% through August this year. Even the proportion of apartment monthly rent contracts reached 46.8%, nearly half. Both figures are record highs. The KB Real Estate monthly rent index for Seoul apartments has set new records every month, reaching 129.7 in September, a surge of nearly 30% in about four years.

In this climate, the likelihood of further increases in monthly rent is high. Since the jeonse system kept housing costs low, the disappearance of jeonse creates significant room for rent hikes. According to the Ministry of Land, Infrastructure and Transport and the Organisation for Economic Co-operation and Development (OECD), Korea’s rent-to-income ratio (RIR) stands at 15.8%, which is significantly lower than the OECD average (21.8%), the United States (24.4%), and Japan (19.9%).

Experts have warned that as foreign capital dominates the rental market, the housing costs for ordinary citizens are rising sharply. Park Wongap, Chief Real Estate Specialist at KB Kookmin Bank, pointed out, "While the proportion and amount of monthly rent are rising rapidly, government measures remain relatively insufficient," and stressed, "It is necessary to significantly expand support measures such as monthly rent vouchers or tax credits to ensure housing stability for ordinary citizens."