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[Editorial] Vanishing jeonse

Revised lease act entices landlords into shifting to monthly rent

The House Lease Protection Act, which was revised to strengthen the rights of tenants and went into effect Friday, gave a jolt to the market.

The revised act allows tenants to extend their two-year “jeonse” contracts for another two years. The first two-year contract was guaranteed under the law before it was revised. The new act also limits the increase of the second two-year jeonse deposit to a maximum of 5 percent.

In South Korea, a jeonse tenant gives the landlord a lump-sum deposit to lease the house free of monthly rent. The owner invests the deposit and returns it to the tenant when the lease expires. Jeonse is much less burdensome for tenants than monthly rent.

The amendment could see a reduction in the lease system in favor of monthly rents, and raise tenants’ housing expenses in the medium and long term.

News about the revision drove landlords to withdraw jeonse homes from the market or raise jeonse prices before the new law took effect. Reportedly just seven houses are available for jeonse in a large apartment complex of more than 4,400 units in southern Seoul.

According to Korea Appraisal Board, jeonse prices for apartments in Seoul rose an average of 0.14 percent in the week leading up to July 27. The increase was a 7-month high since the week ending Jan. 6.

According to a real estate portal site run by KB Kookmin Bank, apartment jeonse prices in 14 Seoul districts north of the Han River averaged 401.8 million won ($337,000) last month, surpassing 400 million won for the first time since the KB began to compile related data in June 2011.

The revised act is of help to existing tenants who want to live on more stable and affordable leases. But those currently looking for jeonse homes in Seoul may have to settle outside of Seoul due to the shortage of jeonse homes and increased jeonse prices.

Tenants may breathe a sigh of relief that they will be able to extend their jeonse contracts one time for another two years, but the problem will come after that. After two or four years, they will likely have to move out. They may not even find houses for jeonse at all in places where they want to live.

Homeowners are not likely to extend jeonse contracts for the second time. It is disadvantageous for them to keep renewing contracts with the same tenants, because they can raise jeonse prices sharply for new tenants. Also, they are tempted to change the lease from jeonse to monthly rent.

Given ultra-low interest rates and property holding taxes set to keep rising, monthly rent is advantageous for landlords. However, tenants will take on heavier burdens if they have to pay rent each month.

Jeonse is a form of house lease proper to Korea. It is favorable to tenants, who have used it as a ladder to home ownership because jeonse can buy them time to save money till they have their own houses. If jeonse vanishes, it will be more difficult for tenants to have their own houses.

Rep. Yoon Joon-byeong of the ruling Democratic Party said a change from jeonse to monthly rent is not a bad phenomenon. He said the era when every tenant pays monthly rent is coming. His remarks are sophistry, and do not take account of reality. They will only add fuel to popular anger over upheavals in the housing market.

The nation has 19.98 million households, including 8.74 million who do not own their own homes. Of those who rent, 40 percent have jeonse leases. The revision to the housing lease act affects many people, both homeowners and tenants.

The ruling party with a large majority in the parliament rushed the amendment through the National Assembly without discussing it with opposition parties, and the government enforced it a day later. The party and the government listened neither to residents, nor prepared complementary measures to calm the market.

If side effects happen, it is the responsibility of the ruling party and the government.
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