The collapse of real estate prices is causing panic among supporters of the traditional Korean system of access to housing, called “jeonse”, the scene of a sharp increase in fraud and the risk of bankruptcy for many young people. The crisis is such that the National Assembly was to vote, Wednesday, May 24, a law to help victims of the abuses of this system. This was developed in Korea in the 19th century.e century, at the time of the opening of the country, synonymous with the influx of foreigners, and which is found in Bolivia or in certain regions of India.
In this context, a tenant pays an owner a deposit equivalent to between 50% and 80% of the value of a property. This tenant can then enjoy it, in general for two years, without paying rent. At this deadline, the owner returns the money paid. The average deposit for an apartment in Seoul was, at the end of 2022, 680 million won (478,000 euros).
“People prefer jeonse to monthly rent because bank interest for the deposit is cheaper than monthly rent”, explains Kim Yoo-jin, from Kyonggi University. Tenants also tend to view the deposit as a form of savings, as “the money does not disappear, unlike the monthly rent”notes Kwon Dae-jung, of Myongji University.
Malicious owners
The system allows owners to obtain funds to grow. Provided that real estate prices increase steadily, but moderately. Between 1986 and 1990, housing costs jumped by 47.3%, and those of jeonse by 82.2%. Faced with the dizzying increase in deposits, many tenants have been ruined. Some have committed suicide.
Today, the trend is downward in housing and jeonse prices, down 12% and 7% respectively between 2021 and 2023. Between 2017 and 2021, they had increased by 37% and 24%, according to the Korea Real Estate Board data.
As a result, more and more landlords cannot repay the deposit at the end of the contract and fraud is on the increase, with landlords disappearing with the money. Police counted 622 such cases in 2022, three times more than in 2021. The phenomenon has grown to such an extent that victims have created a website, Bad Owners, which exposes the personal information of malicious owners.
The first victims are young people between the ages of 20 and 40, followers of jeonse because they cannot afford to buy real estate – a dream shared by many Koreans – and do not wish to rent. Many have gone into debt: loans for jeonse contracts represented, at the end of 2022, 10% of household debt.
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