On the verge of collapsing the 50% rental price rate for apartments in Seoul, the gap investment bubble disappears [횡설수설/김재영]

These days, landlords say, “The most frightening is the tenant who used the right to request renewal of the contract.” This is because the tenant who has renewed the contract according to the 3rd Lease Act can notify the contract termination at any time. The rental price is getting lower and lower, and it is difficult to find someone who will pay the full price, so I am afraid that the tenant will change his mind. Conversely, tenants are more worried about ‘whether our landlord can afford to return the deposit’ at the news of the heinous charter fraud. Distrust is growing in the real estate market.

▷ As the jeonse price drops steeper than the sales price, the ‘reverse jeonse crisis’ of distrust is intensifying. The jeonse price ratio (ratio of jeonse price to sale price) of apartments in Seoul has entered a countdown to a 50% collapse. According to KB Real Estate, the Jeonse rental rate for apartments in Seoul in February fell for three consecutive months to 51.23%. Since November of last year, the method of apartment price research has been changed, so it is not possible to compare directly with previous statistics, but in terms of simple figures, it is the lowest in 11 years since February 2012 (51.16%). In the regulated areas of Gangnam 3-gu and Yongsan-gu, the jeonse rental rate has already fallen below 50%.

▷It is rare to see a simultaneous drop in the sales price and the jeonse price, and even more so in the jeonse price. It only appeared briefly after the foreign exchange crisis in the late 1990s and the financial crisis in 2008. In general, when the sales price falls, the jeonse price rises as the demand for choosing jeonse instead of trading increases with the expectation that it will fall further. Then, when the jeonse rental rate rose to a certain level, the jeonse demand turned into sales demand, raising the house price.

▷The recent phenomenon of a sharp drop in jeonse prices and a drop in sales prices is also a counterproductive effect of the rise in jeonse prices as much as house prices over the past few years. The jeonse market fluctuated greatly after the introduction of the 3rd Lease Act in 2020. As the contract period increased from two years to a maximum of four years, the landlord thought that he would not be able to post it later, so he offered to receive a lot at once. As contract renewals increased, charter sales also decreased. Because of this, the rental price peaked in 2021 and bubbled. It was also at this time that the gap between the house price and the jeonse decreased, and ‘gap investment’ was rampant. The expansion of loans for leasehold deposits, saying it was for the lessee, also played a part in raising the deposits as a result.

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▷However, in just two years, the invincible belief of ‘Gap Investment’ that ‘house prices and jeonse prices go up’ was broken. The problem is that the risk in the housing market has increased as the trust that deposit money can be returned has been shaken. There is a high possibility that a full-fledged reverse jeonse crisis will occur this year when the charter contract signed at the peak in 2021 expires. The Korea Research Institute for Human Settlements predicted that if the sales price fell by 20%, 40% of the houses purchased with jeonse would face the risk of non-return of the deposit. While removing the house price bubble, careful monitoring is needed to ensure that a sharp drop in jeonse prices does not lead to housing instability for the middle class.

Kim Jae-young, Editorial Writer, redfoot@donga.com