‘Jeonse’ blues

“Jeonse” prices have been soaring amid the prolonged slump in the property market. The average jeonse to apartment price ratio reached 62.1 percent in September, the highest since October 2003. / Korea Times file

Low earners struggle to find homes amid soaring rents

Kim Ji-hye, a 37-year-old housewife in Hannam-dong, Seoul, is concerned as the “jeonse” contract with her landlord will soon expire and she will probably face a drastic rise in her deposit when renewing it.

“I’m happy with my neighborhood as well as the house where I live,” Kim said. “But what worries me is that my landlord will ask me to increase the jeonse deposit a lot, just like other landlords.”

Jeonse is a unique rental system in Korea, where the tenant pays about half the market price of the home up front and has the money returned after the expiration of the contract, which usually lasts two years. The accumulated interest is considered rent for that period.

Kim is one of many tenants singing the blues in this peak moving season.

Kim said she has few options but to pay a higher deposit if her landlord asks her to do so because it will be too much work for her family to find a new home.

“One of my neighbors saw her jeonse deposit rise by 50 million won from the previous 250 million won to renew the contract. We’re now considering taking out loans if necessary,” she said.

Jeonse is still the dominant system in Korea but rents have soared for the past few years as the demand for leased housing continues to rise. Frustrated homebuyers are also hesitating to purchase property amid the sluggish real estate market.

As a result, the average jeonse to apartment price ratio reached 62.1 percent in September, the highest since October 2003, according to a report on the housing market by KB Kookmin Bank, Wednesday.

It said jeonse prices have soared about 25 percent in the past two years. The deposits have continued to rise nationwide since March 2009, the longest growth streak since the bank began keeping related records in 1986.

Experts say there is non-speculative demand for housing but people are delaying plans to buy due to market uncertainties and government’s initiatives have failed to boost the housing market.

“Jeonse prices have been soaring as people continue to delay or give up purchasing houses and instead decide to stay where they are after renewing their rental contract,” said Park Won-gap, head of KB Kookmin Bank’s real estate business department.

In addition to soaring prices, tenants seeking jeonse leases complain that there are few houses available.

Kim Jung-eun, a 30-year-old office worker in Seoul, said she managed to rent an apartment after spending about a month searching with her fiance.

“We were first shocked by jeonse prices and also by the fact that there were only a few apartments that we could rent,” she said. “And if you’re hesitating on choosing a property in the hope of finding a better one, someone has already taken it.”

Real estate agencies are also complaining about the low level of recent transactions, which is leaving them in difficult conditions given that they depend so much on the commissions accrued from transactions.

“Jeonse prices have soared to a ridiculous level,” Lim Geum-soon, a real estate broker in Gumho-dong, Seoul, said. “But there are not many apartments available at the moment. We have people on waiting list who want us to call them when a house for rent comes on the market.”

But experts believe that the shortage of jeonse rental properties will continue for a while unless the housing market rebounds.

“Jeonse prices only soared 0.3 percent in September after a steep rise in the past two years and have entered a stabilization stage,” Park said. “But as many choose to renew their contracts and delay buying houses, the shortage is expected to persist for a while.” <The Korea Times/Kim Tae-jong>

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