[Interview] HUG President Choi Inho: "Landlords Will Join Jeonse Trust With Guaranteed Returns at Conversion Rate Levels"

Interview with Choi Inho, President of the Korea Housing & Urban Guarantee Corporation (HUG)

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"The apartment jeonse-to-monthly rent conversion rate in Seoul is 4.75%. Adding various additional benefits to HUG's guaranteed yield of 4.35%, we can offer a stable return of nearly 5% per month. There is no reason not to enroll if you are guaranteed monthly rental income comparable to the conversion rate."

Choi Inho, President of the Korea Housing & Urban Guarantee Corporation (HUG), who launched the Safe Jeonse Trust (Jeonse Trust) project, revealed that comprehensive financial support for both landlords and tenants is under consideration. This move is meant to establish private jeonse contracts as a reliable public system by stimulating financial activity in the market.

In a recent interview with The Asia Business Daily, President Choi explained, "There are landlords who would like to join but can't, as they have no available funds because they must use the new tenant's deposit to pay the departing tenant." He continued, "We’re considering a plan to provide support funds for jeonse tenant departure, conditional on enrolling in the Jeonse Trust." He added that HUG is discussing with financial authorities the possibility of excluding such support loans from total household loan restrictions. Choi also mentioned that negotiations with the five major commercial banks regarding the launch of low-interest jeonse loans for tenants enrolling in the Jeonse Trust are in their final stages.

Choi Inho, President of Korea Housing and Urban Guarantee Corporation, poses ahead of an interview with The Asia Business Daily on the 16th at the Seoul Western Branch of Korea Housing and Urban Guarantee Corporation in Yeouido, Seoul. Photo by Kang Jin-hyung

The Jeonse Trust is a system introduced by HUG to alleviate concerns for both landlords and tenants regarding jeonse leases. When a tenant deposits their jeonse guarantee with HUG, HUG provides investment returns to the landlord in the form of monthly rent. HUG is set to begin recruiting landlords for the first time at the end of this month and has presented a long-term roadmap to accumulate 100 trillion won in deposits.

President Choi also expressed an ambition to expand HUG's work scope from guarantees into all aspects of housing finance, using the Jeonse Trust as a springboard. "In the past, the Housing Bank not only provided guarantees but also directly issued project financing (PF) loans," he noted. "If we accumulate 100 trillion won in trust funds through deposit guarantees over the long term, we could also use 20 trillion won of surplus funds from PF loans for purchase-and-lease projects." The following is a Q&A with President Choi.

-What prompted the introduction of the Safe Jeonse & Monthly Rental Trust?

▲From a tenant's perspective, the cost burden of monthly rent is substantial, yet jeonse supply is decreasing and concerns over deposit losses persist. I, too, once faced sleepless nights as a newlywed, worried about not getting my jeonse deposit back. Over the last 30 years, Korea has made remarkable progress, but the jeonse market remains underdeveloped. There must be no instances where people lose their hard-earned life savings due to institutional loopholes. The Safe Jeonse & Monthly Rental Trust is a system that civic groups and the National Assembly have advocated for under the earlier name of "Jeonse Escrow." We once suggested that, at minimum, the contract deposit could be held by HUG during the rental contract process. Last year, we considered how escrow, which can fundamentally protect deposits and prevent jeonse accidents, could be linked to housing supply. During this period, both the Presidential Office and the Ministry of Land, Infrastructure and Transport also recommended examining the trust system. Over three to four months, we designed and refined the system.

Choinho, President of Korea Housing & Urban Guarantee Corporation, is giving an interview to The Asia Business Daily on the 16th at the Seoul Western Branch of Korea Housing & Urban Guarantee Corporation in Yeouido, Seoul. Photo by Kang Jinhyung

-There are market concerns about having a public institution manage deposits.

▲The Jeonse Trust is a voluntary system, open only to those who wish to participate. I believe initial concerns stemmed from the misconception that the system was compulsory. For tenants, there is no reason for objection—deposits are protected and living costs are lower than monthly rent, thanks to bank jeonse loans. The key is the landlord. If we guarantee monthly rental income comparable to the jeonse-to-monthly rent conversion rate, there’s no reason not to join. Currently, the apartment jeonse-to-monthly rent conversion rate in Seoul is 4.75%. If you add the 4.35% yield guaranteed by HUG to advantages such as mitigated vacancy and overdue rent risk, along with various tax benefits, we can offer a stable yield approaching 5% per month.

-Are there additional incentives devised for construction rental businesses and tenants?

▲We focused on how to compensate for cash flow lost by construction rental businesses when entrusting rental deposits to HUG. To address this, we are considering raising the maximum limit of HUG’s mortgage guarantees from the current 60% of appraised value to 70–75%. Some companies have indicated they would entrust jeonse deposits if the guarantee cap were raised. Increasing the mortgage guarantee limit is an approach only HUG can offer. We’re also considering securitizing rental income from leases of up to four years. For instance, if 10,000 units are entrusted, and 300 billion won in rents is accumulated over four years, securitizing that 300 billion won could help maintain the business operator’s cash liquidity. Negotiations with the five major banks on launching low-interest jeonse loans for tenants enrolling in the trust are nearly complete. The only thing left is to finalize the interest rates.

Choi Inho, President of the Housing and Urban Guarantee Corporation, is being interviewed by The Asia Business Daily on the 16th at the Seoul Western Branch of the Housing and Urban Guarantee Corporation in Yeouido, Seoul. Photo by Kang Jinhyung

-Can properties with existing mortgages join the Jeonse Trust? How do you plan to encourage landlord participation?

▲Even if a landlord’s property is mortgaged, they can still join the Jeonse Trust. However, some landlords lack available funds to join, as they must pay departing tenants with deposits from new tenants. To support these landlords, we’re considering providing ‘replacement funds’ for departing tenant deposits, conditional on joining the trust. This does conflict with the government’s household loan restrictions overall. However, the intent of household loan restriction is to prevent gap investing. Depositing jeonse money with HUG is not for investment arbitrage. If deposit trust helps stabilize the rental market, we will discuss with financial authorities whether loans for tenant exit funds can be excluded from overall household loan control.

-You have announced plans to use trust deposits for housing supply, but critics say this goes against the nature of a guarantee institution.

▲If one only sees HUG as a guarantee institution, such criticism is understandable. But as a housing finance institution, we can serve multiple roles. Even now, we provide loans through the Housing & Urban Fund. If we reach 100 trillion won in trust funds through deposit guarantees over the long term, we’ll be able to operate PF loans and use the 20 trillion won in surplus funds to pursue purchase-and-lease projects. We already have experience from the “Durndun Jeonse” program. If a single villa in Seoul averages 400 million won, 20 trillion won would allow us to buy 50,000 units and supply them as public rental housing. Providing a range of purchase-based projects and releasing them as public rentals in volume could also stabilize the rental market.

Choi Inho, President of the Korea Housing & Urban Guarantee Corporation, is giving an interview with The Asia Business Daily on the 16th at the Seoul Western Branch of the Korea Housing & Urban Guarantee Corporation in Yeouido, Seoul. Photo by Kang Jinhyung

-There are concerns that HUG’s expanding role could increase its financial burden.

▲We will minimize any financial impact from expanded guarantee provision through rigorous risk management. We are systematically monitoring not only the risks of individual businesses, but also institutional soundness at the corporate level. There has not been a single guarantee accident since we raised the PF guarantee cap in October 2023, even among projects that received guarantee approval. This is thanks to a thorough review at the guarantee issuance stage and comprehensive post-issuance management. Going forward, we will continue to strike a balance between policy support and financial soundness.

Discussion led by Choi Daeyeol, Deputy Editor of the Construction & Real Estate Section

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