Jeonse Ladder Broken... "With Apartment Jeonse Scarce, Tenants Turn to Villa Monthly Rent" [Real Estate AtoZ]

71.8% of Non-Apartment Rentals in Seoul Were Monthly Contracts from January to November
Up 5.3 Percentage Points Year-on-Year
Demand Shifts as Apartment Jeonse Supply Dwindles
Monthly Rent on the Rise amid Jeonse Fraud Concerns

Panoramic View of Apartment Complexes in Seoul City

"There are so many existing tenants renewing their contracts that there are virtually no apartment jeonse listings left. Some people are even inquiring about moving into villas. However, most of them prefer to sign monthly rent contracts, citing concerns about the risks associated with jeonse." (A certified realtor in Daechi-dong, Gangnam-gu)

Recently, the proportion of monthly rent contracts in Seoul's non-apartment rental market has been increasing. Due to government real estate regulations drying up apartment jeonse supply, tenants who had been considering non-apartment options such as villas and multiplex homes are now opting for monthly rent instead of jeonse. The aftermath of large-scale jeonse fraud cases from a few years ago has also contributed to the perception that "it's better to pay monthly rent than risk losing the jeonse deposit." As a result, there are growing concerns that the housing costs for ordinary citizens are rising, as both home purchases and jeonse leases have become increasingly inaccessible.

According to the Ministry of Land, Infrastructure and Transport's actual transaction price disclosure system on December 3, the proportion of monthly rent contracts among non-apartment (row houses, multiplex homes, single-family and multi-family houses, officetels) rental transactions in Seoul from January to November of this year stood at 71.8%. This is a 5.3 percentage point increase from 66.3% during the same period last year. Among non-apartment types, single-family and multi-family houses had the highest proportion of monthly rent contracts at 81.3%, followed by officetels at 74.3%, and row houses/multiplex homes at 59.2%.

The proportion of monthly rent contracts for non-apartment properties was 68.8% in March this year, but after the government began enforcing regulations such as requiring actual occupancy when taking out a mortgage loan (the so-called gap investment crackdown) with the June 27 measures, the rate rose to 73.1% in July. In August, it climbed further to 74.6%, marking the highest point this year. Although it has declined slightly since then, it has remained above 70% through October.

On March 24, the three Gangnam districts in Seoul were designated as Land Transaction Permission Zones, followed by the entire city of Seoul on October 20. This designation means that buyers are now required to actually reside in the properties they purchase, leading to a further decrease in jeonse supply. As it has also become more difficult to sell a home that is occupied by a jeonse tenant to buy another property, contract renewals for jeonse have increased as well.

Kwon Youngsun, Team Leader at Shinhan Bank Real Estate Investment Advisory Center, stated, "With the expansion of Land Transaction Permission Zones, jeonse listings are dwindling, and the preference for monthly rent over jeonse is becoming more pronounced. We expect that demand for non-apartment properties will continue to rise due to these policy effects."

Instability in the villa jeonse market is also accelerating the shift toward monthly rent. As the impact of the 2022 jeonse fraud cases lingers, the perception that it is better to minimize one's deposit even if it means paying more in monthly housing costs is spreading. Last month, the proportion of monthly rent contracts among all contracts with registered fixed dates in Seoul reached 63.8%. This represents a 6.6 percentage point increase from December 2022, when the so-called "Villa King" scandal-where over 1,100 homes in Gangseo-gu, Seoul and Incheon were used for jeonse fraud-became widely known, at which time the rate was 57.2%.

Looking ahead, if the trend toward switching to monthly rent in non-apartment properties becomes established, monthly rents are likely to rise further. With sharp increases in housing prices and strong regulations, there are growing concerns that housing costs for ordinary citizens, who cannot afford to buy a home, will continue to climb.

Yoon Sumin, Real Estate Specialist at NH Nonghyup Bank, commented, "With apartment jeonse options unavailable, people are turning to non-apartment properties. However, since villas are now seen as only suitable for monthly rent contracts after the jeonse fraud incidents, the shift toward monthly rent in non-apartment properties will only accelerate."

Ham Youngjin, Head of Real Estate Research Lab at Woori Bank, added, "Just like with apartments, there is talk of a supply crunch for row houses and multiplex homes. As demand for non-apartment properties increases and supply remains tight, we expect monthly rents to continue rising at least through next year."