By Jane Han
Staff Reporter
Here's more bad news for cash-crunched homeowners: If the ``jeonse'' contract on your home is nearing expiration, your tenant may ask you to cough up money for a renewal due to the plunging property market fiasco, which has recently knocked off long-term rental rates by as much as 10 percent.
Jeonse is one of two major kinds of leases for Korean housing, in which a tenant makes a lump-sum deposit for a two-year rental. At the end of the contract, the landlord returns the full amount to the renter.
Take the Lake Palace apartment in Jamsil, for example. Renting a 112 sq. meter unit cost 380 million won two years ago, but it is now valued at just above 300 million won. Considering the latest price trends, the tenant will probably ask the landlord to give back part of the price difference for a renewal.
It will be a tough call for owners, because giving up renewal opportunities means that they have to hunt for new tenants.
Early winter ahead of the new school year is typically a busy moving season with high jeonse demand, but the situation is different this year as oversupply, few transactions and deflation are dragging down prices.
According to Property 114, a local property brokerage with a nationwide network, Sunday, jeonse prices in Seoul have dropped 1.28 percent in November alone, the biggest single-month drop this year.
Kim Kyoo-jung, the consultancy's research specialist, says market inactivity and constant influx of new supply in areas like Banpo and Jamsil will continue to drive down long-term leasing prices.
``Potential relocaters are deciding to stay put to save moving costs and broker fees, but we're seeing more and more newly built homes getting put up for rent,'' said Kim, who explained that popular southern Seoul districts like Daechi-dong saw jeonse values shed by 20 to 30 million won over the past two or three months.
The slow jeonse market mainly means homeowners are going to find it tough finding tenants amid oversupply, which consequently means they'll have to find alternative ways to repay their current renters' lump-sum deposit when contracts end.
Usually, owners make a smooth transition by receiving money from the new party and passing it to the one moving out.
``We're already seeing cases in which the owner and tenant have disputes over slow deposit returns,'' said Kim.
Some owners are even putting their home up for sale because they can't manage to flesh out the deposit money or find new renters. But that isn't the best solution in the current market situation, say experts, since property transactions are at a standstill.