'Jeonse ratio' hits 6-year low on rapid apartment price hike

A man looks at apartment rent and sales offers put up in the front window of a realtors office in Seoul, April 21. Korea Times file

By Lee Kyung-min

The “jeonse ratio,” the ratio of housing deposit compared to the market value of apartments, dropped to the lowest in six years in Seoul and the surrounding Gyeonggi Province region, continuing the downtrend of the past 16 months on the back of a rapid increase in apartment prices over the past few years, data showed Tuesday.

The ratio is considered a bellwether index for forecasting the property market outlook. Unique to Korea, jeonse is a way of renting a home whereby tenants pay a massive lump sum as a deposit instead of monthly rent.

Despite the months-long downtrend, however, expectations are growing that jeonse prices will bounce back in the coming months as many landlords are likely to ask for larger deposits amid the low interest rates, compounded further by the fast-tightening property market amid the COVID-19 pandemic.

Data from KB Kookmin Bank showed the jeonse ratio in Seoul and Gyeonggi Province stood at 65.1 percent in April, the lowest since March 2014 when it reached 64.4 percent.

By region, the ratio was 54.7 percent in Seoul, 73.1 percent in Incheon and 65.1 percent in Gyeonggi Province.

Seoul's ratio first fell below the 60 percent level in November 2018 and has since been on the decline for the past year and four months.

The ratio for Incheon hovered around 75 percent in 2019 but has been steadily dropping from 75 percent in January, followed by 74.7 percent in February. March saw a ratio of 73.6 percent and April 73.1 percent.

Some districts that have yet to be designated as “speculative” regions in Incheon saw a relatively sharp drop of a range between 1.9 percent and 2.7 percent, a similar decline experienced by some districts in Gyeonggi Province, where the ratio has dropped for the past five months since marking 72 percent in November 2019.

Those “less popular” districts were what investors had to settle for due mostly to a “ballooning effect,” which drove speculative forces out of designated areas with stricter rules in place, into nearby areas.

Separate data from Korea Appraisal Board (KAB) showed the ratio in Seoul and Gyeonggi Province at 65.9 percent in April, the lowest since 65.8 percent in February 2014. Gyeonggi's rate was 69.3 percent.

Yet, some market watchers say the ratio in Seoul has bottomed out, an inference made from data released by property market service provider Real Estate 114 that showed the month-on-month jump to 50.29 percent in April, up by 0.15 percentage points from 50.14 percent in March.

The April figure broke the 15-month downtrend that began in 53.76 percent in January 2019, fanning expectations that demand for jeonse will increase while apartment prices will drop further.

According to KAB, the median apartment price in Seoul fell for the second consecutive month in April. The figure peaked at a record high of 839.5 million won ($685,000) in February and has since slid to 836 million won in April down from 839.3 million won in March.