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Government under fire for soaring ‘jeonse’ prices

The government’s move to raise the ceiling for loans exclusively for “jeonse” is facing criticism for its potential negative effect on mounting household debt.

Jeonse is a rental system under which tenants put up a lump-sum deposit for rent, instead of monthly rental fee. Property owners either invest the jeonse deposit or collect interest on the sum through their bank.

Jeonse rental costs have soared particularly in Seoul due to a supply shortage as people delay making home purchases due to falling housing prices, and homeowners turn to the monthly rental system amid low interest rates.

“With continued rising jeonse rental costs for the past few years, jeonse tenants whose two-year-long jeonse contract expires this fall are facing difficulties with getting extra money to extend their contract,’’ an official from the Financial Services Commission said on Friday.

“To avoid a possible crisis in the jeonse rental market in the latter part of this year, the government is in discussions to raise the jeonse loan guarantee to 300 million won ($267,000) with the Housing Finance Corp. from the current 150 million won ($133,000).”

Jeonse has skyrocketed since 2008 when the real estate bubble burst in Seoul, leading to skittish home-buying amid fears of falling housing prices.

According to the Real Estate Serve, a real estate market information portal, the jeonse for 1.20 million households surveyed in Seoul reached 277 million won on average in the third week of July this year, which amounts to 99 percent of the average home price in the capital area excluding Seoul. The trend has pushed jeonse tenants in Seoul out to satellite cities in Gyeonggi Province.

On top of the expanded loan guarantee for more jeonse rental borrowing, the Ministry of Land, Infrastructure and Transport said it will step up the supply of jeonse-based rental houses in the latter part of this year.

The government’s move to stabilize the jeonse rental market, however, faces criticism from the main opposition Democratic Party and some market experts who are concerned about its impact on household debt.

“The expanded jeonse loan guarantee could raise the nation’s entire household debt, which already exceeds 1 quadrillion won ($890 billion),’’ said a DP official from the committee on household debt.

The opposition party has called for the government to put the brakes on skyrocketing jeonse prices by placing an upper limit on the jeonse rental cost or by extending the contract term from the current two years to four years.

By Seo Jee-yeon (jyseo@heraldcorp.com)
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