Jeonse price growth hits 8-year high

By Kim Da-ye

The price of “jeonse,” Korea’s unique rental payment system rose 7.1 percent last year, the highest annual rate since 2003 in contrast to a stagnant property market, a Kookmin Bank report showed Tuesday.

“Due to fears of a protracted slump in the property market, potential home buyers put off purchasing houses and preferred to rent under the jeonse system, boosting the demand,” the real-estate unit of the nation’s largest lender said. Sales prices rose by just 1.9 percent throughout 2010.

Korean tenants have long been relying on jeonse ― a rental system in which they pay a lump sum as “key money” to their landlord at the beginning of their tenancy and get the full amount back when they move out. They do not pay any monthly rent during the term while landlords have the freedom to invest the large amount of cash as they like until the contract ends.

The dramatic hike in jeonse has put a burden on middle- and low-income households, many of whom cannot afford to purchase their own homes.

Jeonse once shot up 10.1 percent in 2002, but has remained quite stable until recently ― it rose 3.4 percent in 2009, 1.7 percent in 2008 and 2.6 percent in 2007.

Jeonse for apartments rose by a particularly wide margin at 8.8 percent, up from 4.5 percent in 2009 and 0.8 percent in 2008. The mid- and small-sized apartments were the most popular with their jeonse rising 7.3 percent and 8.1 percent, respectively, compared to a 5.4 percent growth for large-sized apartments.

The biggest growth in prices was seen in Busan and Daejeon with the rate rising 22.2 percent in a district in northern Busan.

“In the last few years, the supply of new apartments was short while demand rose along with more convenient transportation and redevelopment projects.

In Seoul, jeonse rose by 6.4 percent ― 8.8 percent in southern Seoul and 5.4 percent in northern Seoul.

The price isn’t likely to drop anytime soon due to the shortage of the properties rented under such terms. As of December, 77.4 percent of the real estate agencies surveyed by Kookmin Bank said supply was short, in stark contrast to the 3 percent who said it was adequate and the 19.6 percent who said it was at an appropriate level. The figure is much higher than 62.3 percent from a year earlier and 31.2 percent in 2008.