[Real-life Finance] Jeonse Shortage Persists...Tenants Should Secure Renewal Rights and Apply for Phase 3 New Town Housing

Holding on to Your Current Home Matters More Than Finding a Better One

Phase 3 New Town Subscriptions Becoming More Attractive as New Supply Starts

Areas With Ample New Rentals Offer Better Options for Jeonse

Non-Apartment and Public

Mr. A (39), an office worker living in an apartment in Gangbuk-gu, Seoul, is facing the expiration of his jeonse lease in two months. Two years ago, he moved into a 59-square-meter apartment with a jeonse deposit of 320 million won, but recently, a new jeonse contract for an apartment of the same size in the same complex was signed at 500 million won. If he wants to find a new jeonse home, he needs to prepare an additional deposit of 100 to 200 million won. Since he is still living in his current apartment, he is also debating whether he should exercise his right to request a contract renewal now. The landlord has said, "You can renew if you pay a bit more," but A is not sure whether it is wise to save his one-time renewal right for later.

View of the villa district in downtown Seoul from Namsan, Seoul. Photo by Dongju Yoon

As the jeonse crisis drags on, tenants like A are faced with increasingly complex calculations. According to the Ministry of Land, Infrastructure and Transport's actual transaction price disclosure system on May 13, the proportion of renewal contracts among apartment jeonse and monthly rental agreements in Seoul during the first quarter of this year was 46.9%. This is 5.1 percentage points higher than the previous quarter's 41.7%. On a monthly basis, the proportion has continued to rise: 45.4% in January, 47.8% in February, 47.7% in March, and 47.8% in April. For jeonse contracts alone, the renewal contract ratio in April surpassed half, reaching 53.77%.

With fewer jeonse properties available in Seoul, it has become more difficult to find new jeonse homes, and signing a new contract now requires a higher deposit. According to a real estate agency representative in Sanggye-dong, Nowon-gu, "Nowon-gu has traditionally been an area where newlyweds and young professionals start with jeonse or monthly rent, save money, and later purchase their own homes. These days, however, even if jeonse prices rise by tens of millions of won, there are no listings available, and monthly rents have jumped by 500,000 won in a year, making it harder for ordinary people to find housing."

According to real estate big data platform Asil, as of May 12, there were approximately 16,300 jeonse listings in Seoul, down more than 20% from three months ago. Monthly rental listings have also decreased by over 20% during the same period. With both jeonse and monthly rental options shrinking, tenants are prioritizing "staying in their current home" over "moving to a better one."

"If you save it, you might never use it"... Use your renewal right first

Although renewal contracts are increasing, the proportion of tenants exercising their right to request renewal is actually declining. In the first quarter of this year, only 43.3% of renewal contracts involved the use of the renewal right, down from 51.83% in the third quarter of last year and 47.1% in the fourth quarter. Exercising the renewal right allows tenants to limit rent increases to within 5% and stay for another two years, but it can only be used once. As a result, some tenants are choosing to negotiate a new contract with the landlord—even if it means accepting a rent increase greater than 5%—in order to save their renewal right for later. Considering moving costs, agent fees, the burden of jeonse loans, children's schooling, and commuting, many find it better to stay in their current home than to look for a new one.

However, experts warn that saving the renewal right as a blanket strategy can be risky. The renewal right is not a card that tenants can use at any time they wish. If the landlord demands termination of the contract on the grounds of moving in for personal residence, tenants may find it difficult to exercise their right. In particular, for landlords who own only one non-residential home, moving in for two years can satisfy the requirements for capital gains tax exemption, making the landlord's intentions in two years a significant variable. Ham Young-jin, head of the real estate research lab at Woori Bank, said, "There is no way to know what choice the landlord will make in two years, and it is not easy to secure this with a special clause." He added, "In the current severe jeonse shortage, it is better to exercise your renewal right at the earliest opportunity to secure residential stability rather than saving it until the end."

Keep an eye on the 3rd phase new towns... Prioritize regions with new supply for your next jeonse home

Tenants facing the expiration of their jeonse contract must first decide whether to remain in the rental market or shift their focus to home ownership. If they plan to stay in their current home and still have their renewal right available, it is worth actively considering exercising it. If new jeonse prices are significantly higher than the current deposit, or if it is difficult to find alternative listings within the same living area, simply exercising the renewal right can help prevent a surge in housing costs for at least two more years.

If you do not intend to stay in the rental market for the long term, you should also develop a subscription (cheongyak) strategy. This year, large-scale public housing sites—including the third phase new towns such as Changneung in Goyang and Wangsuk in Namyangju, as well as Dongtan in Hwaseong, Nakseng and Bokjeong in Seongnam—will be supplied in earnest. With sales price caps in place, you can purchase prime locations at between 19 million and 20 million won per pyeong. If you have a subscription savings account, and you are a newlywed, a first-time homebuyer, or a household with a newborn, you should consider applying for these opportunities while weathering the jeonse crisis.

Tenants who need to find a new jeonse home should start by looking in areas with new supply. If it is difficult to find your preferred jeonse in Seoul, consider newly built complexes or regions with significant new supply in the outer Seoul metropolitan area. In areas with large numbers of new move-ins, landlords often adjust jeonse deposits or monthly rent terms to attract tenants, potentially providing more options.

Non-apartment and public rentals are also alternatives

If there are no viable options in the apartment jeonse market, consider non-apartment or public rental options. However, for villas, officetels, and urban-style residential units, you must first check whether jeonse deposit return insurance is available and whether there are any senior liens. It is safer to avoid properties with excessively high deposits compared to market value or those with landlords who have large outstanding loans. Public and purchase rental housing supplied by Korea Land & Housing Corporation (LH) and Seoul Housing & Communities Corporation (SH) is frequently announced, so it is wise to check for listings before your jeonse contract expires. Accepting a portion of the rent as monthly rent can also be a practical alternative. Given the high interest rates on jeonse loans, it may be better in terms of overall housing costs to pay some monthly rent rather than increasing your loan by raising the deposit. In this case, you should compare not only the monthly rent but also the total cost, including the increased deposit, jeonse loan interest, management fees, moving costs, and agent fees.

Ham emphasized, "It seems unlikely that the supply of jeonse and monthly rental properties will increase rapidly within the next year or two." He advised, "If you do not plan to stay in the rental market indefinitely, you should actively consider applying for subscriptions in the third phase new towns and public housing sites that are being launched in earnest this year." He added, "Until you win a subscription, you should broaden your options by considering rentals in areas with large new supply, as well as non-apartment and public rental housing, to diversify your housing costs."

This content was produced with the assistance of AI translation services.