By Yoon Ja-young
More people are moving out of Seoul because of soaring rents.
And the outflow is likely to continue as the rental market goes through a transition.
According to Statistics Korea data, Seoul had a net outflow of 37,520 people in the third quarter compared with a year ago. It is the biggest net outflow since the second quarter of 2002 when 42,078 people left.
The capital city has experienced a net outflow of population since the second quarter of 2009. Gyeonggi Province, which surrounds Seoul, had a net inflow of 25,919 people in the third quarter. It is the biggest inflow since the fourth quarter of 2012.
Statistics Korea said it might have to do with soaring jeonse prices in Seoul.
Jeonse is Korea’s unique home rental system where the tenant gives a lump sum deposit to the landlord without monthly rent, to get the full deposit back at the end of the contract. The system had been preferred by landlords as they could deposit the money in their bank accounts to earn interest or use the money for other investments during the contract period, without having to pay interest to the tenant. But it has become an unattractive option for landlords because interest rates are historically low. Landlords get a bigger return from monthly rent.
More landlords therefore have been switching to this from jeonse, making the latter scarcer. Jeonse prices have been soaring steeply during the past few years, and it has been especially so in Seoul. According to Real Estate 114, a real estate market information provider, jeonse deposits for apartments in Seoul averaged 388.8 million won, up 50.2 million won from last December.
Analysts expect these prices to continue rising as jeonse gets scarcer.
“While the jeonse system won’t completely disappear from Korea, the continuously low economic growth and low interest rate will pressure it to decrease,” said Lee Mi-yun, a researcher at the Real Estate 114 Research Center.
“In the long run, there will be two mainstreams in Korea’s housing market _ those who have homes and those who have to pay monthly rent. That’s what I currently see in other developed countries.”
She said low-income households are especially pressured to switch to monthly rent. “While those with high incomes are buying homes through mortgages, the low-incomers are giving up buying homes, ending up paying monthly rent,” she said.
She cited 2014 government statistics that showed 58 percent of households own their homes. While the ratio of homeowners increased to 77.7 percent from 72.8 percent between 2012 and 2014 among high-incomers, the ratio fell to 50 percent from 52.9 percent among those on low incomes.