Jeonse System : South Korea’s Faces Crisis as Landlords Struggle to Return Deposits in 2023

Jeonse System : SEOUL ,When (Lee Cheol Bin) discovered he’d probably never recover the 210 million won ($163,000) deposit on his apartment with Crisis in the rental in Seoul when his lease expires in November, the 29-year-old was racked with anxiety and began avoiding friends and relatives. “I couldn’t sleep at night or focus on work for a few months,” says Lee, who had taken out a 120 million won loan to cover a portion of the deposit.

The South Korean jeonse system, peculiar to the country, has been a traditional manner of renting homes. Under this arrangement, landlords collect a deposit called jeonse, which is anywhere from 50% to 90% of a property’s value at the start of the lease period, usually covering two years. Tenants are excused from paying rent during this period, while landlords invest the funds elsewhere to generate profits.

Historically, jeonse established its roots in the 19th century, acquiring great popularity throughout the 1970s when urbanization increased with industrialisation. Mortgages were not widely accessible for many people, making jeonse a favoured choice for renting properties.

However, recent events have produced a crisis inside the jeonse system. The abrupt reduction in property prices, notably in Seoul, the nation’s capital, has greatly hampered the landlords’ capacity to refund deposits at the end of the lease period. A research by Knight Frank indicated that prices in Seoul plunged by 9% in the year through March, with some neighborhoods witnessing even more substantial decreases of up to 30%.

As property prices climbed, landlords could easily utilize new tenants’ deposits to pay back those whose leases were expiring. But with the present decrease in property prices, landlords are collecting lower deposits from new tenants, leading to difficulty in repaying renters whose leases are ending.

The problem has developed to the point where the number of court actions filed by renters against landlords for unreturned deposits has soared. In the first half of 2023, these cases reached over 19,200, a 60% increase compared to the full of 2022, as reported by the Supreme Court of Korea. More than half of the 2 million people who have paid jeonse are at risk of losing a chunk of their money, according to the central bank.

The gravity of the problem is highlighted by fatal consequences. At least five tenants who incurred losses have died by suicide this year, as revealed by the police.

Jeonse System & The Corporation

The Korea Housing and Urban Guarantee Corp., responsible for deposit insurance, paid out a record 1.17 trillion won in compensation in 2022 and may need to disburse as much as 4.7 trillion won this year, according to Eunyoung Choi, executive director of the Korea Center for City and Environment Research now it is in crisis. Only around 20% of jeonse renters have completely insured their deposits.

In response to the crisis situation, President Yoon Suk Yeol’s administration has established a task group to counter jeonse fraud. The government has also released an app that allows potential tenants to check if landlords have tax liens on their houses, trying to promote more openness in the system. The Ministry of Land, Infrastructure, and Transport is leading reform efforts, proposing to have a third party, such as a brokerage, operate as a custodian for jeonse deposits. However, landlords have not been open to this proposal.

Sim Sang-Jung, an opposition politician, places some of the blame on the government, citing its failure to restrict the growth in borrowing by jeonse tenants. This inflow of money into the property market, particularly jeonse loans, has contributed to the bubble in crisis.

The crisis has affected innumerable individuals, such Hong Su-min, who saved tirelessly for six years to afford a 110 million won deposit on her studio just outside Seoul. However, her landlord’s problems with tax payments and finding a new renter has put her deposit at risk. Hong Su-min’s story is one among many others who aspire to regain their jeonse deposits.

Also Read : Unlocking Ayodhya’s Tourism Potential : 49 New Spots & Ram Mandir Buzz Attract Travelers!