"Even with Higher Deposits, Tenants Choose to Stay"... Seoul Apartment Lease Renewals Surpass New Contracts [Real Estate AtoZ]

First Week of LTPZ: Renewal Contracts Hit 50.2%
More Tenants Choosing to Stay Put
Seoul Jeonse Listings Plunge 22% in a Year
Sharp Increases in Deposits Becoming Common
70% of Renewals Involve Higher Deposits
Tenants Reluctant to

Since the full expansion of the Land Transaction Permission Zone (LTPZ) on October 20, there has been a significant increase in Seoul residents giving up on moving and choosing to stay in their current jeonse or monthly rental homes. Following the announcement of these measures, the number of jeonse and monthly rental listings has dropped sharply, leading to more tenants opting for 'renewal contracts' rather than 'new contracts.' The rise in renewal contracts is expected to further reduce available listings, which in turn is likely to drive up jeonse and monthly rental prices. Some experts predict that this trend could eventually lead to an increase in home sale prices.

With the sharp decline in jeonse listings, the proportion of 'renewal contracts' has exceeded half. The photo was taken near Suraksan Station in Nowon District on the 26th. Photo by Yonhap News.

According to the Ministry of Land, Infrastructure and Transport's actual transaction price system, out of 1,949 apartment rental transactions in Seoul between October 20 and 26, 971 were new contracts (49.8%) and 978 were renewal contracts (50.2%). Although this data covers only one week, it shows a dramatic shift in market sentiment. On a monthly basis this year, the share of renewals had never exceeded half; from January to September, the average was 58.6% for new contracts and 41.4% for renewals.

The sharp increase in renewal contracts appears to be a direct result of the aftereffects of the October 15 measures. Since October 20, all of Seoul has been designated as an LTPZ, meaning that even if someone buys a home, they cannot lease it out for two years. This comes on top of the June 27 measures, which require those taking out a mortgage in the Seoul metropolitan area to move in within six months, further restricting rental supply. As a result, another policy has effectively dried up the supply of jeonse listings.

In fact, as of October 27, there were 24,486 jeonse apartment listings in Seoul, a 22.2% decrease from 31,472 listings at the same time last year. The KB Real Estate jeonse supply-demand index for Seoul apartments hit a record high of 157.7 as of October 27. This index measures the supply of jeonse properties relative to demand; a value above 100 indicates that demand exceeds supply.

Given these circumstances, more tenants are choosing to stay put even if it means accepting higher deposits. An analysis of 600 renewal contracts where the right to request contract renewal was not exercised showed that in 424 cases (70.7%), the deposit was increased. The deposit remained unchanged in 150 cases (25.0%) and was reduced in 26 cases (4.3%).

In areas newly designated as LTPZs under the October 15 measures, there have been numerous cases of jeonse deposits rising by hundreds of millions of won. For example, a 84-square-meter unit in 'Trimage' in Seongdong District saw its jeonse deposit rise from 1.55 billion won to 1.85 billion won, an increase of 300 million won. Other examples include an 84-square-meter unit in 'Godeok Gracium' in Gangdong District (from 810 million won to 1.01 billion won), 'Ujangsan Hillstate' in Gangseo District (from 500 million won to 700 million won), and 'Gongdeok Park Xi' in Mapo District (from 980 million won to 1.17 billion won), all of which saw jeonse deposits rise by nearly 200 million won in just two years.

However, the increase in renewals does not mean that more tenants are exercising their right to request contract renewal. Of the 978 renewal contracts during the same period, only 38.7% (378 cases) involved the exercise of this right, a significant drop from September (52.9%) and the January-September average (50.1%). This right was introduced in 2020 as part of the two major tenancy laws, and when exercised, limits rent increases to about 5%. Ham Youngjin, head of the Real Estate Research Lab at Woori Bank, explained, "The decline in exercising this right reflects the sentiment that 'since it can only be used once, it's a waste to use it now; rent prices could rise much more in two years.'"

Experts are warning that instability in the jeonse and monthly rental markets could spill over into the home sales market. The Korea Research Institute for Human Settlements found in May that a 1% rise in jeonse prices leads to a 0.65% increase in home sale prices. Park Wongap, chief real estate expert at KB Kookmin Bank, said, "If the shortage of jeonse and monthly rental listings blocks the circulation of properties, even a small shock could cause jeonse prices to fluctuate wildly. If this instability persists, it could trigger a chain reaction that pushes up home sale prices." He added, "Stronger regulations do not eliminate demand for home purchases; instead, this demand hides in the jeonse market. Because jeonse acts as a kind of 'refuge,' depending on future market conditions, this demand could return to the sales market."

Meanwhile, the ruling party has drawn a clear line regarding the controversial '3+3+3' amendment to the Tenancy Protection Act (which would guarantee up to nine years of residence), stating that it has "never considered" such a proposal. The bill would extend the standard lease term from two to three years and allow tenants to exercise their renewal right twice instead of once, enabling contracts to last up to nine years. Recently, Han Changmin, leader of the Social Democratic Party, sponsored the amendment, with Democratic Party lawmakers joining as co-sponsors, sparking strong backlash amid concerns that it would further accelerate the sharp decline in jeonse listings.