Security Trust Offers 4% Annual Returns for Deposited Jeonse, but Attracting Regional Landlords Remains a Challenge (Comprehensive)

4–5% Annual Interest Returns Offered to Landlords
Dedicated Safe Trust Jeonse Loan Product to Launch
Fund Capital to Be Used for New Rental Unit Purchases
Incentive Plan Needed for Provincial Landlords

The Housing and Urban Guarantee Corporation (HUG) will launch the "Monthly Rent Security Trust" system at the end of this year, under which HUG directly manages tenants' jeonse (long-term deposit-based rent) deposits and pays annual fixed yields of 4~5% to landlords. The intention is to offer landlords stable returns, prevent the conversion of jeonse to monthly rentals, and reduce incidents of deposit defaults. However, as conversion rates from jeonse to monthly rent are relatively higher in regions outside the Seoul metropolitan area, it may be difficult to attract landlords solely through operating yields, and additional incentives will likely be needed.

On August 20, HUG held a press briefing and announced that it would promote the Monthly Rent Security Trust business as a follow-up to the "Plan for Rapid Housing Supply."

Monthly Rent Security Trust Business Structure. Provided by Housing and Urban Guarantee Corporation (HUG).

The Monthly Rent Security Trust involves a three-party rental contract among HUG, the landlord, and the tenant. Instead of handing over the deposit to the landlord, the tenant entrusts it to HUG, which will use the funds to form a "Housing Supply Revitalization Fund." HUG will then lend these funds to project sites with HUG’s Project Financing guarantees, providing monthly interest returns of 4~5% to landlords. Choi Inho, President of HUG, stated, "Based on the lending rates of PF loan sites, achieving a stable annual yield of around 4.5% is fully feasible."

From the tenant’s perspective, the risks of jeonse fraud, deposit defaults, and housing cost burdens are expected to decrease. For example, if a landlord who owns a multi-unit villa worth 300 million won converts a jeonse deposit contract of 200 million won to monthly rent, the tenant would have to pay 740,000 won in monthly rent for a deposit of 10 million won (based on Seoul's average conversion rate of 4.7%). However, if the landlord deposits the jeonse with a stabilization entity and maintains the jeonse contract, the tenant would only need to pay about 530,000 won in interest for a jeonse loan. HUG also plans to introduce a dedicated loan product for the Security Trust via regular commercial banks in the future.

President Choi explained, "If a tenant stays for a total of four years through contract renewal, they can accumulate a lump sum of 10.08 million won," adding, "The benefit arising from the difference between the jeonse loan interest and the monthly rent will help tenants save up a substantial amount."

HUG aims to secure 15 trillion won in deposits by targeting 50,000 households per year. The agency is also considering utilizing part of the fund to purchase new units for lease, should the trust fund grow to 100 trillion won. Choi said, "Assuming we operate 80 trillion won from the 100 trillion won trust and generate a yield in the higher 4% range, 20 trillion won in surplus capital will be created. Using these funds for the purchase-lease business would increase the proportion of public rental housing, which would be a positive structural effect."

Villa complex in Seoul city. The Asia Business Daily database

The key issue is whether landlords in regions with higher conversion rates than the Seoul metropolitan area will participate. According to the Korea Real Estate Board, as of last month, the apartment jeonse-to-monthly rent conversion rates were 5.2% in the Seoul metropolitan area and 5.8% in the provinces. For non-apartment properties, the gap is even larger: last month’s conversion rate for multi-unit and row houses was 5.9% in the capital region versus 7.3% outside the region. For local landlords, converting jeonse to monthly rent yields higher returns than depositing jeonse with HUG. While HUG is coordinating with related ministries to lower the rental income tax rate from the 14% range to a single-digit percentage through a revision of the enforcement decree, no separate incentives have yet been developed for landlords in the provinces.

President Choi stated, "We have not yet prepared specific incentives for provincial landlords," but added, "Measures to address the higher local conversion rates will be developed separately going forward."

Additionally, the program will initially only target homes valued at or below 2 billion won, raising concerns that participation rates may be low for apartments in high-demand school districts in major areas of Seoul. According to the Ministry of Land, Infrastructure and Transport's real transaction price disclosure system, since February through early this month, apartments sold for over 2 billion won accounted for 11.9% of all Seoul transactions, while those over 3 billion won represented 4.6%. In Gangnam-gu and Seocho-gu in particular, median apartment prices stand at 2.66 billion won and 2.4525 billion won, respectively. President Choi noted, "We plan to launch the program initially targeting homes under 2 billion won," but added, "We will expand the eligible scope of the program over time."

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