Signs of renting apartments in Seoul
Demand is increasing due to the tin villa crisis
The supply of flats has fallen and the number of properties for sale has plummeted.
Renewal usage increased from 27% to 35%
Seoul rent prices are rising for 50 weeks in a row
There are concerns that house prices will rise over the long term.
Enlarge photo “Just a year ago, there was talk of ‘reverse jeonse’, so I thought I’d get my jeonse money back when I renewed my contract, but I didn’t know that jeonse prices would raised so much in the meantime. I barely renewed my contract with a 5% increase using my contract renewal right.”
Mr Kim, who lives in a large complex (Recent) with 5,500 homes in Songpa-gu, Seoul, said, “The rate at which the rent is rising is too fast. I exercised the right to renew my contract once this, so I’m afraid where I’ll go after two years when I can’t use the right to renew.”
Just a year ago, this complex where Mr. Kim lives won a lease price of 900 million for a 30-pyeong (unique area of 84㎡, 33 pyeong) unit according to the national square footage. However, the current market price has risen almost 300 million won to 1.2 billion won (KB price). The asking price for the property is in the range of 1.04 billion to 1.5 billion won, with the lowest asking price also rising by more than 100 million won compared to a year ago. This year, the same square footage was traded for up to 1.4 billion won.
An official at a nearby real estate agency said, “Those renewing their contracts are signing contracts for about 1 billion won, and new transactions are being completed for over 1.2 billion won. Only two years ago, I thought the jeonse diving would continue, but the atmosphere has changed a lot in the last year.”
As the jeonse supply plummets, the jeonse crisis worsens in Seoul and the metropolitan area. The number of tenants moving in is falling, and the demand for jeonse, which had been dispersed to non-apartments such as villas, is flocking to apartments, increasing the pressure to increase jeonse. Seoul rents have already been on the rise for 50 weeks (from the 2nd). Rising rental prices are putting increasing pressure on real estate. Between 2019 and 2022, rent prices in Seoul rose for 134 consecutive weeks, pushing sales prices up. Experts are concerned that “there are many factors that will cause jeonse supply to decrease in the future,” and that “the real estate market may overheat as the jeonse crisis extends.”
According to Asil, an apartment information app, on the 2nd, rental properties in Seoul and the metropolitan area are falling rapidly. The number of rental properties in Seoul fell by 25% from 39,324 a year ago to 29,499 currently. Although it is a large complex with over 1,000 households, there are places without any rental properties. Samsung Raemian in Guro-dong, Guro, Seoul has 1,244 households, but no rental properties. An official from a nearby real estate agency said, “Since the 2000s, the demand for apartments for actual residents has been high, so the jeonse shortage has become more serious.”
Since there are no jeonse properties for sale, the market price of jeonse also rises. Heliocity in Songpa, Seoul (only 84㎡) was contracted for around 800 million won two years ago, but is currently being traded for around 1 billion won. DMC Park View Xi, a large complex in Seodaemun-gu, Seoul, fetched a lease price of 600 million (only 84㎡) a year ago, but this price is hard to find these days. An official at a nearby real estate agency said, “Most homes are in the 700 million won range, and for places in good condition, prices are higher than the 800 million won.”
Just two years ago, it was expected that a ‘reverse lease’ would occur where landlords would have to return deposits to tenants, but now the situation is exactly the opposite. Tenants use their contract renewal rights to extend their leases. If you exercise the right to request a contract renewal, you can live for another two years with a 5% increase in deposit. In Mokdong Central I’Park We have, a large complex in Yangcheon-gu, Seoul, 10 out of 14 lease contracts for 34 pyeong this month are renewal deals. Mr Lee, who recently extended the lease of an apartment in Yangcheon-gu, Seoul, said, “The price of living has risen and living is tight, but the additional costs such as moving costs and air conditioner installation fees are burdensome. It is better sit still for another two years as the lease price has also gone up. Let’s take a break and think about what to do next.
Contract renewals have increased this year. According to Real Estate R114, out of 36,247 apartment lease contracts in Seoul this year, 12,604 were renewal contracts, accounting for 35% of the total. It increased by 8 percentage points compared to last year (27%). This is because it is more advantageous to renew a contract which can only increase up to 5% due to the increase in jeonse rent. As existing tenants extend their leases, new leasehold properties supplied to the market are more valuable. An official from a real estate agency in Seongdong-gu, Seoul said, “People who don’t actually live in the house buy houses and rent them out, but these days, nobody buys an extra house because of the heavy acquisition tax (up to 12%).
A reduction in supply is expected in the future, raising further concerns about the jeonse crisis. According to the Korea Housing Association, the number of house building permits in Seoul last year was 25,567 households, a decrease of almost 40% compared to the previous year (42,724 households).
Ko Jong-wan, director of the Korea Asset Management Research Institute, said, “Jeonse is really a demand. If there is more supply than demand, the jeonse price will fall, and if there is a lot of demand, the jeonse price will rise that can supplying jeanse where there is demand.”
[이선희 기자]
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