EXPLAINER Jeonse: How Korea's homeownership shortcut turned into breeding ground for fraud
A panoramic view of apartment complexes in Seoul seen from the 63 Square skyscraper, Aug. 30 / Yonhap
For decades, Korea’s unique “jeonse” rental system was widely seen as a natural stepping stone to homeownership.
The system spread during the country’s breakneck economic growth in the 1970s. Under jeonse, tenants pay their landlord a large lump-sum deposit — often equivalent to 60 to 80 percent of the property’s value — instead of monthly rent. The deposit is returned in full when the lease ends, typically after two years.
Such distinct rental arrangements took root in part because Korea’s formal housing finance market was still underdeveloped at the time.
As rapid urbanization drove millions of people from rural areas into cities, demand for housing surged. But ordinary households had limited access to mortgages, as banks were largely focused on channeling credit into state-led industrial development projects.
Jeonse effectively filled that gap as a private alternative to bank financing. Landlords could use tenants’ deposits to fund part of a home purchase, invest the money or deposit in high interest-bearing accounts. In that sense, the deposit functioned much like an interest-free loan.
For tenants, meanwhile, it offered a way to secure a home without having to pay monthly rent that they would never get back. Those able to raise the upfront deposit could live in the property for the duration of the lease and receive the same principal back at the end. That meant they could retain a substantial pool of savings that could later be put toward buying their own home.
For a generation of Koreans, jeonse thus served both sides of the country’s still-evolving housing market. And for years, this arrangement worked remarkably well — until the financial and property market conditions that had sustained it started to change.
As interest rates began to fall, landlords could no longer earn as much by putting tenants’ deposits to work. At the same time, expectations of ever-rising property prices gradually faded, making it harder for landlords to count on their homes continuing to rise in value.
That shift exposed a risk that had long been hidden in plain sight. Jeonse rests on a simple, largely trust-based premise: that the landlord will have enough cash to return the deposit in full when the lease ends.
When property prices fall during a market slump or when a new tenant’s deposit is lower than the amount owed to the outgoing tenant, that assumption can unravel. Landlords can find themselves short of the cash needed to repay departing renters, effectively leaving the latter to bear the losses.
What was once a key source of financing for Korea’s housing boom has thus become a major source of financial risk — and, in some cases, a vehicle for outright fraud.
A former criminal investigator with the Seoul Central District Prosecutors' Office, accused of failing to return 3.2 billion won in "jeonse" deposits to 25 Dongtan tenants in Hwaseong, Gyeonggi Province, leaves the detention center at Yongin Dongbu Police Station to attend a court hearing, July 24. Yonhap
How jeonse became vehicle for fraud
In 2022, one housing scandal thrust jeonse fraud into the national spotlight.
Nam Heon-gi, the so-called “villa king” who amassed around 2,700 residential units in Incheon, was found to have defrauded 820 renters of a combined 58.9 billion won ($44 million).
He acquired properties with little of his own money, instead using tenants’ deposits to fund successive purchases — a form of highly leveraged property flipping that relied on a steady stream of new tenants to keep the scheme going. But as the property market weakened and the flow of new deposits dried up, that cycle broke down. The case exposed how the structure of jeonse could be exploited on an industrial scale.
A more recent scandal showed that the problem extends beyond property speculators. A criminal investigator with the Seoul Central District Prosecutors’ Office was accused of owning more than 70 properties in Dongtan in Hwaseong, Gyeonggi Province, and failing to return a combined 3.2 billion won in deposits owed to 25 tenants. He fled to the Philippines in 2025 as complaints mounted and was forcibly returned to Korea this July after arrest.
Other scams involve landlords collecting deposits for properties they have no right to lease. A common example is when a property has been handed over to a trust company as loan security but is rented out anyway without the company’s permission. Fraudsters may also provide different versions of a contract to the tenants or lease the same home to multiple renters without their knowledge.
For tenants, the consequences can be devastating. A jeonse deposit represents years of savings, often topped up with a bank loan. When it cannot be recovered, victims can lose much of their wealth while still being left with debt to repay.
The burden has fallen disproportionately on younger Koreans. As of Aug. 31, the Ministry of Land, Infrastructure and Transport had officially recognized 40,936 people as victims under the Special Act on Support for Jeonse Fraud Victims and Housing Stability. Those under 40 accounted for 75.95 percent of the total.