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Posted : 2009-07-29 17:46
Updated : 2009-07-29 17:46

Tenants Face Hard Times From Rising Jeonse Payments

By Kim Tae-gyu
Staff Reporter

Whether or not home prices will rise is an issue that can be debated. But there seems to be no dispute over whether or not rent prices will.

According to real estate agencies Wednesday, ``jeonse'' is rising rapidly in Seoul as demand continues to outstrip supply.

Jeonse is a Korea-specific deal that refers to the lease term of a house. Instead of paying a monthly rent, tenants pay a lump-sum deposit, or jeonse, at the start of a contract.

Landlords are required to return the deposit, which amounts to around 30-50 percent of the property's value, at the end of the contract, which usually expires after two years.

Koreans use the unique format instead of employing Western style rents.

``Tenants are lining up to sign jeonse deals but landlords do not want lease homes on the present jeonse terms,'' said a real-estate agent in southern Seoul.

``Accordingly, jeonse levels have rocketed this year. In some southern Seoul areas, prices have jumped 30 percent during the past six months,'' he said.

The agent listed two reasons for the rise in jeonse in the capital city _ low interest rates and a lack of new apartment supply.

``You know, homeowners have chalked up handsome profits in the past based on the jeonse system. Hence, they loved the format,'' the anonymous agent said.

``However, low interest rates prompted them to change their mind. So now they are tilting toward monthly rents. This leads to increases in jeonse,'' he said.

The Bank of Korea has kept the benchmark interest rate at a record low 2 percent over the past few months to grapple with the lingering financial crisis.

Market interest rates are upside of 2 percent but they are still relatively low compared to past years.

In addition, a dearth of new apartments is aggravating the problem.

Real Estate Bank, a local property consultancy, said the number of new apartments built in Seoul this year is expected to be around 37,000, substantially down from last year's 50,000.

The figures are expected to fall further to about 21,000 next year and 16,000 in 2011.

``The economic turmoil discouraged a host of construction companies from building new apartments in Seoul and its vicinity. Therefore, supply is not enough,'' a Real Estate Bank executive said.

``Things will remain similar for the time being as the number of new apartments in Seoul is likely to decrease. We need to take a set of measures to prevent a jeonse fiasco,'' he said.

voc200@koreatimes.co.kr

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