‘Jeonse’ scams trap tenants in housing rental crisis

Members of a jeonse scam victims' group from Incheon’s Michuhol District hold a press conference in front of the Supreme Court in Seocho District, Seoul, Jan. 23. Yonhap

When Kim, 25, who asked to be identified only by her surname, moved to Incheon in February 2020 for a new job, she placed her life savings into a unique Korean rental system.

Her investment was a “jeonse” deposit, a once-trusted rental arrangement where a tenant pays a large lump-sum deposit to a landlord in lieu of monthly rent. For decades, the system offered tenants an affordable path to housing while providing landlords with capital to invest. But as the housing market has grown volatile, the system has become a source of risk, leaving tenants vulnerable to fraud and foreclosure.

For Kim, the system’s promise swiftly unraveled.

With her 50 million won ($35,800) in savings and an additional 30 million won from a friend, she signed a lease and moved into an apartment. Two years later, a court notice informed her that the home was being put up for auction. She was listed as a junior creditor, a designation that meant her money would be paid out only after others had been compensated, putting both her and her friend’s savings at risk.

“Unlike today, when people are more alert to jeonse scams, there wasn’t much awareness when I signed my contract,” Kim told The Korea Times. “I had never heard the term ‘jeonse scam,’ so it never crossed my mind that I could fall victim to one.”

Now, however, few in Korea are unfamiliar with jeonse scams. As Kim’s case makes clear, when landlords cannot return deposits — whether through deception or a market slump — tenants can be left in dire financial straits.

Many tenants raise their deposits by combining nearly all their savings with bank loans, so losing the money often means losing nearly everything they own.

Fear of falling victim has pushed many renters toward monthly leases instead of jeonse, driving monthly rent prices to record highs. The shift underscores how a once-dominant housing system unique to Korea is losing trust and reshaping the nation’s rental market.

A residential neighborhood in central Seoul is seen from Mount Nam, May 22. Yonhap

According to Supreme Court data, the number of monthly rental contracts reached nearly 1.06 million nationwide in the first seven months of this year, up 27 percent from the same period last year.

Monthly rentals accounted for 61.9 percent of all housing leases, the first time the share has exceeded 60 percent since the Supreme Court began compiling the data in 2010.

By contrast, jeonse contracts fell to 38.1 percent this year from 59.3 percent in 2020 — the first time their share has dropped below 40 percent.

The surge in demand for monthly rentals has pushed rent prices to record highs. According to the Korea Real Estate Board, the median monthly rent in Seoul hit 980,000 won in July, up 4.8 percent from January and 30 percent from July 2015. It was the highest level on record.

Many experts say the fallout from jeonse scams is one of the main factors driving the sharp rise in monthly rent across the housing market.

“Now that jeonse scams are widely known, many are turning to monthly rentals out of fear,” Kim Jin-yoo, a professor in the Department of Urban Planning and Transportation Engineering at Kyonggi University, told The Korea Times.

“With housing prices rising and deposits harder to secure, this shift to monthly rent is not a temporary adjustment but a structural change in the market,” Kim said.

He added that the decline of jeonse and the rise of monthly rentals carry both positive and negative implications.

A notice for small studio apartments available for monthly rent is posted at a real estate office in Dongdaemun District, Seoul, Aug. 26. Yonhap

“The upside is that for years people overlooked the risks of jeonse, making fraud and deposit losses a social problem,” Kim said. “With greater awareness, such cases should decline. At the same time, with less money locked up in large jeonse deposits, more capital is freed up, making the housing market more efficient.”

He added that one reason major companies had long avoided rental housing projects in Korea was the dominance of jeonse. As monthly rentals grow, firms can now rely on steady rent payments to repay construction loans, which may encourage more corporate investment in rental housing.

On the downside, Kim noted, housing costs for low-income households are rising. In the past, some landlords used large jeonse deposits to buy low-rise apartments and multiunit houses. Builders met the demand by constructing and selling more units, helping expand the supply of smaller homes for lower-income households.

But as jeonse scams scare off tenants, demand has dried up and supply has fallen sharply.

“As affordable housing options shrink, the burden on low-income households grows heavier,” Kim said. “Because loan interest on jeonse deposits was typically lower than paying monthly rent, many renters now face even higher housing costs.”

Civic group members hold a press conference on housing rights and jeonse scam prevention in front of Gwanghwamun in central Seoul, April 30. Yonhap

Kim Hyo-seon, a senior real estate expert at NH NongHyup Bank, agreed that the acceleration of rent prices would hit vulnerable groups the hardest.

“If the supply of new housing stays limited while monthly rents keep climbing, the impact will fall most heavily on people with unstable incomes,” she said. “Since their earnings are not rising at the same pace, higher rents add an even heavier burden to their living costs.”

In response to mounting pressures, the government has introduced measures to ease rent burdens.

In July, the Ministry of Land, Infrastructure and Transport set aside an additional 57.2 billion won to provide up to 200,000 won a month in rent subsidies for two years, to 157,000 people aged 19 to 34 who do not own their own home and earn less than 60 percent of the median income.

The ministry also set aside 320.8 billion won to add 3,000 units of jeonse-style rental housing, offered below market rates for young people and newlyweds.

Despite these government measures, the pain still lingers for victims of jeonse scams.

Kim of Incheon now lives in the property where she was scammed, having bought it at auction because it was the only way to keep a roof over her head. She said the process has put her through tremendous hardship.

“The hardest part is losing so much time, going to court for auction notices, visiting banks for loans and constantly looking for ways to resolve this issue,” she said.

“Because I lost money to the scam, I should be working to earn it back. Instead, I spend so much time dealing with the problem that I have less time to work, leaving me even poorer. The pressure of being trapped in that cycle has been overwhelming.

“If I could go back, I would never choose jeonse again,” she added.