SEOUL: A downturn in South Korea’s home prices is causing pain in the country’s unusual rent-free rental system that benefited landlords and tenants alike during a long surge in residential property prices.
In the “jeonse” scheme, tenants put up a deposit typically worth as much as 70 per cent of the home’s value, then live without paying rent for two years until the landlord returns the full amount.
This was a win-win for residents and owners for years as home prices rose and interest rates were high: The loan tenants paid to raise their deposit was cheaper than rent and landlords got an interest-free loan to deploy as they pleased.
Jeonse tenancy has been particularly popular among people in their 20s and 30s, who could not afford the full price of a home but could use the system to get a toehold into the Korean dream of home ownership.
But median house prices have fallen 12 per cent and jeonse prices 7 per cent over the two years to January after surging 37 per cent and 24 per cent, respectively, over the preceding four years, according to Korea Real Estate Board data.
“THOUGHT I WOULD BE JUST FINE”
Overextended landlords are failing to return deposits, hitting younger tenants especially hard and threatening to undermine trust in the system.
Yoo Ha-jin, 28, regrets not getting insurance for her jeonse deposit when she signed in March 2021. Her bankrupt landlord told her in December the property would be auctioned and she could expect to get around 45 per cent of her deposit back at most.
