"Essentially Private Lending" "Claim That Jeonse Loans Fueled Housing Price Surge Is Illogical"...Examining the 'Disappearance of Jeonse' Debate [Why&Next]

Debate Over the "Disappearance of Jeonse": Is It Fading or Being Phased Out?

President Lee Calls It "Normalization"; Opposition Labels It a "Policy Disaster"

Landlords Favor Monthly Rent Amid Low Interest Rates

Jeonse Fraud Sparks Growing Housing Insecurity

Controversy Over Jeonse's Role as a "Housing Ladder"

"It's essentially a form of private lending. It's a unique financial technique. This practice is now disappearing. (...) In the end, I think it will gradually fade away."

Property listing notice posted at a real estate agency in Seoul. Yonhap News Agency

The aftermath of President Lee Jae-myung's remarks on the "disappearance of Jeonse," made during his first-anniversary press conference earlier this month, continues to reverberate. As Jeonse contracts rapidly decrease, concerns have emerged that the housing ladder for young people and those just starting their careers is collapsing, while others argue that the system has fulfilled its historical role. Since the president addressed the issue directly, the debate has spilled over into the political sphere.

Oh Se-hoon, Mayor of Seoul, commented on President Lee's remarks, stating, "The disappearance of Jeonse is not normalization but a policy disaster." He criticized, "This is a painful consequence of the government's misguided real estate policies, and it is shaking the very foundation of housing stability for ordinary citizens." Kim Jong-yang, a lawmaker from the People Power Party, pointed out that the total balance of Jeonse loans in Korea as of March this year stood at 171.1 trillion won, down by about 2.4 trillion won compared to when the current administration took office, yet the average sale price of apartments in Seoul has risen by 7%. He argued, "Claiming that Jeonse loans are the main culprit behind skyrocketing housing prices is illogical."

President Lee Jae-myung is speaking at the Senior Secretary Meeting held at the Blue House on the 25th. Photo by Yonhap News

Why Is Jeonse Declining?

Regardless of the underlying causes, the share of Jeonse has been declining, as confirmed by the data. According to statistics from the Ministry of Data and Statistics, the proportion of Jeonse among all rental households fell from 65.7% in 2000 to 39.9% in 2020. In Seoul, the figure dropped from 71.7% to 47.5% over the same period. The Ministry’s data is compiled every five years, and the 2025 figures have not yet been released.

According to data from the Seoul Real Estate Information Plaza, Jeonse contracts now account for about one-third of recently reported housing rental transactions. Over the past year—from June last year to May this year—Jeonse made up 232,604 out of a total of 638,547 housing lease transactions, or about 36.4%. In particular, for non-apartment units such as villas, the Jeonse proportion is only around 25%.

The reasons for the decline in Jeonse are multifaceted. The profit structure of Jeonse consists of the interest or investment gains earned from managing the deposit, combined with capital gains from price appreciation when selling the property. With low interest rates persisting for decades, it has become difficult for landlords to generate returns from the deposit, making monthly rentals more attractive. Various regulations and high taxes imposed on multiple homeowners have also made "gap investment"—buying homes using tenants' deposits—increasingly difficult.

Additionally, in recent years, incidents of Jeonse fraud have left tenants unable to recover their deposits, leading to a growing reluctance among renters to entrust large sums of money. In high-priced areas like Seoul, rising Jeonse deposits have forced some tenants to resort to loans, and since loans introduce monthly fixed expenses, more households are opting for monthly rent instead. Whereas the interests of landlords and tenants were once aligned, that is no longer the case.

Jeonse Sustained by Jeonse Loans

However, despite unfavorable conditions such as low growth and low interest rates, the Jeonse system has persisted. This is partly attributed to households unable to afford home purchases and those reluctant to pay monthly rent. As a result, the average Jeonse deposit has increased—meaning Jeonse prices have risen. In the profit structure of Jeonse mentioned earlier, the return on managing the deposit is calculated as deposit × rate of return. Even with returns lower than in the past, the system can function if the deposit amount grows.

The primary driver of growing deposits has been Jeonse loans. Despite low returns and relatively stable home prices since around 2010—making capital gains less likely—an influx of new funds, previously unavailable, entered the market. Jeonse loans gained traction after the 2008 financial crisis, when the government, aiming to stabilize housing for ordinary citizens, began offering guarantees through the Korea Housing Finance Corporation.

Unlike mortgage loans, Jeonse loans lack physical collateral and thus require guarantees from public guarantee institutions. The loan ceiling, initially set at 100 million won, was increased to 500 million won in 2015. When the National Housing Fund was established, the government began directly facilitating loans (such as the "Butimnok" loan). For banks, these government-backed guarantees provided an easy way to conduct business in a low-interest-rate environment. The government could also claim credit for promoting housing stability for ordinary citizens without direct fiscal outlays. With the lower barriers to borrowing, tenants continued to increase their reliance on loans, and for landlords, the higher deposits enabled them to maintain Jeonse, despite lower returns.

Trends in the comprehensive housing sale price and jeonse price indexes in Seoul since 2003. While sale prices showed relative stability starting in 2008, jeonse prices experienced a sharp increase. This coincided with the period when jeonse loans began expanding significantly. AI-generated image

Rising Housing Insecurity: What Needs to Be Done?

While Jeonse once played a positive role as a form of forced savings or as a means for low-income households to supplement insufficient funds for purchasing a home, the recent increase in loan dependency has highlighted its vulnerabilities to economic volatility. Experts point out that as social perceptions and conditions surrounding the Jeonse market have changed, and with problems such as Jeonse fraud and deposit non-return becoming prominent, there is a need to reform the system.

Lim Jae-man, a professor at Sejong University, argued at a People’s Solidarity for Participatory Democracy forum last April that it is necessary to prepare for the decline in Jeonse, proposing direct and indirect regulations such as capping the Jeonse-to-sale price ratio below a certain threshold or limiting guarantee ratios, as well as mandatory registration systems for private long-term rentals to encourage the supply of rental housing. Baek Doo-jin, Head of Real Estate Finance Analysis at the Seoul Metropolitan Government, pointed out that Jeonse, with its high reliance on loans, cannot be sustained while maintaining its positive functions. He suggested measures such as encouraging the installment repayment of Jeonse loans, expanding loans and tax credits for monthly rent, and increasing the supply of Jeonse rental housing by public institutions.

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