Things that South Koreans have never experienced before are happening in the “jeonse” market.
The jeonse is a type of housing lease where a homeowner leases out a living space for a lump-sum deposit and returns the money when the renter moves out.
Some renters are said to be demanding “compensation” money from landlords for moving out upon the expiration of their jeonse contracts. Some homeowners have reportedly fallen in a pickle when they try to sell their rental homes, because tenants exercise their right to renew the jeonse, blocking potential buyers from moving in.
Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki is in a similar tight spot.
He lives as a tenant on jeonse in an apartment in Mapo-gu, Seoul, and has to move out in January next year, as the homeowner notified him that he planned to move in. He has not found a new place yet. Jeonse prices in the Mapo area have surged and apartments for jeonse, above all, have become increasingly scarce.
Meanwhile, Hong tried to sell his apartment in Uiwang, Gyeonggi Province, to avoid criticism directed at public officials who own homes where they do not live. In Korea, civil servants who possess more than one home are often stigmatized as speculators. Hong owns a presold apartment in Sejong, but it is under construction. He cannot resell it because the city has been designated as a speculative region.
The person who signed a contract to buy Hong’s Uiwang apartment was intent on moving in, but the existing tenant insisted on jeonse renewal, putting the sales contract at risk. The tenant reportedly planned to move out, but changed his mind -- probably because it was hard to find another home for jeonse.
Under the recently revised Housing Lease Protection Act, tenants can insist on renewing a jeonse contract once, and landlords must accept this unless they move into the homes and live there themselves. Tenants can decide to exercise this right within six months of the jeonse contract’s expiration.
However, if buyers of rental homes want to evict the tenants and move in, they have to pay in full and then register as the new homeowners with the registry offices six months before an existing jeonse contract expires. The buyer of Hong’s Uiwang apartment failed to complete this process before the tenant decided to renew.
Due to the revisions to the Housing Lease Protection Act pushed through by the government and the ruling party, the deputy prime minister for economy is in an awkward situation where he will have to move out of the home where he lives on jeonse and where the contract to sell his apartment has effectively miscarried.
He is derided in online comments asking, “Now that you have become a ‘jeonse refugee,’ can you understand the feelings of the common people?” and “Hong Nam-ki has evicted Hong Nam-ki.”
Embarrassing situations like this occurred after the law was revised in late July. They are the result of strengthening the rights of tenants excessively and treating landlords as if they only exploited tenants. The revision has undermined the rules of transactions.
The government reportedly seeks to revise related regulations to prevent recurrences of the situation that befell Hong. This also invited criticism from the public, which saw that the government began to work on complementary steps only after turning a deaf ear to their outcry over the same problem.
Experts had warned that homes for jeonse would be scarce if the jeonse period were extended to four years and jeonse price increases were capped at 5 percent. But the government and the ruling party rushed to revise the law. The rights of existing tenants have been strengthened, but it has become much more difficult to find homes for jeonse. According to a big data company that surveyed all of the nation’s 1,798 apartment complexes consisting of 1,000 or more household units, 22 percent (390 complexes) have no units for jeonse, and 72 percent (1,299 complexes) have five or fewer.
To resolve the jeonse crisis, the government and the ruling party must discard real estate populism biased toward tenants and must follow the principles of supply and demand. They must listen to the market and revise the law again.