"Finding a Jeonse Apartment in Seoul Becomes Harder"... Apartment Lease Renewals Near 50% [Real Estate AtoZ]

Last Month, 49% of Seoul Apartment Leases Were Renewals
Up 5.3 Percentage Points From Previous Month
Contract Extensions Driven by Fears of Rental Shortages

Apartment buildings in downtown Seoul. Photo by Yonhap News

The proportion of lease renewals (including the exercise of the right to request contract renewal) in Seoul apartment rental contracts has approached 50%. This trend is interpreted as tenants rushing to extend their contracts amid expectations that lease supply will decrease and deposits will rise due to the crackdown on gap investments (purchasing with a lease in place). The use of the right to request contract renewal is also becoming more active as tenants seek to reduce the burden of increased lease deposits.

According to the Actual Transaction Price Disclosure System of the Ministry of Land, Infrastructure and Transport on January 23, the proportion of lease renewals among Seoul apartment rental contracts last month was 49.0%. This figure is up by 5.3 percentage points compared to the previous month. So far this year, as of the 22nd, the proportion has risen to 49.2%.

Until June last year, renewals accounted for 41% of rental contracts. However, following the October 15 Measures, which require buyers of apartments throughout Seoul to move in within six months, rental listings have disappeared from the market. According to data from the real estate platform Asil, as of the previous day, the number of Seoul apartment rental listings stood at 22,149 units, down 27.9% from a year earlier. The shortage of rental supply compared to demand has also driven up rental prices, prompting more tenants to extend their contracts. The Housing Industry Research Institute forecasts a 4.7% increase in Seoul apartment rental prices this year, which is 1.7 percentage points higher than last year’s 3.0% increase. This is also the highest forecast since the 4.9% rise in 2021.

The main reason for the increase in the proportion of renewals is the expanded use of the right to request contract renewal. When landlords demand a deposit increase of more than 5%, tenants can exercise this right to reduce their housing costs. In June last year, the proportion of renewal transactions using this right among Seoul apartment rental contracts was 23.7%, rising to 25.2% in December of the same year. Between January 1 and 22 this year, the proportion increased further to 27.2%.

Yoon Sumin, Real Estate Specialist at NH Nonghyup Bank, said, "In order to increase rental supply, apartments that are actually available for occupancy need to be provided, but achieving this in a short period is virtually impossible. Therefore, tenants are renewing their contracts now to maximize their rental period and then plan to exercise the right to request contract renewal after two years."

Kwon Youngsun, Team Leader at Shinhan Bank’s Real Estate Investment Advisory Center, also stated, "Because it is difficult to find a new rental, existing tenants are naturally trying to stay as long as possible. Since gap investments have been blocked and new rental listings are not appearing, this trend of extending contracts is expected to continue."