Jeonse is a unique Korean housing rental system. It requires tenants to pay a substantial lump-sum deposit, typically 50% to 80% of the property's market value, instead of monthly rent. This deposit is returned at the end of the lease term. Residents have traditionally used low-interest-rate Jeonse loans from banks to lease housing. This practice led to a surge in 'gap investment', where investors buy houses with Jeonse leases requiring less equity capital.

Until recently, Jeonse was considered mutually beneficial. However, structural societal issues have emerged as housing prices stagnate, with some properties now worth less than their Jeonse deposits. This led to an increasing number of landlords unable to return the deposits. Consequently, since 2022, more people have opted for monthly rents over Jeonse, creating opportunities in the private rental housing market.

Figure 1: Jeonse and Monthly rents

Source: Korea Housing & Urban Guarantee Corporation (HUG), Supreme Court of Korea

Korea’s latest Rent Income Ratio (RIR) and Price Income Ratio (PIR) stood at 15.8% and 26%, respectively, in 2023 (KOSIS). The significant gap between RIR and PIR indicates declining interest in home ownership and a growing preference for renting. This trend suggests that policymakers may more actively address housing affordability, potentially through measures promoting a corporate-led private rental housing market.

Figure 2: Rent Income Ratio (RIR) and Price Income Ratio (PIR)

Source: Korea Real Estate Board; 2023.12=100

The transformation of Korea’s leasing structure, driven by changing demographics and economic conditions, reflects a broader trend towards more flexible and diverse housing options. Investors are actively seeking partnerships with reliable operators or have already established joint ventures to become early entrants in the rental housing market.