r/korea • u/ElectricEcstacy • 1d ago
경제 | Economy Why do Koreans do jeonse?
I've heard about this system a lot and I can literally never understand it. Can a korean explain to me why jeonse is even a thing?
In my mind it is very simple. If you have a large sum, which I hear is about 50-80% of the value of the property. Why don't you just buy the house? Property in korea is expensive and goes up. So investing in a property is good. Why would you take so much risk when everyone knows korea has so much fraud. It is really difficult for me to understand.
Edit: I understand this system a little better now, but overall I have to say it still doesn't make that much sense. The landlords would have made way more money if they did traditional rent, investments are not that great these days. And the tenants take on a serious risk of losing the money to fraud.
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u/AEth3lstan 1d ago
Im an expat, but I lived here for 8 years:
You ever save up 15,000usd for a house but you're not qualified for a mortgage?
But there's this guy, down the road- he'll take your lump sum, charge you an extremely subsidized rent, if at all, and you can stay at a really nice place for ten years with the promise he'll give the sum back to you, minus maintenance fees of course.
That's the premise.
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u/newrabbid 1d ago
How does the guy down the road make money if he gives it all back after 10 years?
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u/AEth3lstan 1d ago
He invests it in other apartments for more Jeonses. Others see his success, and well - soon everyone fights to be the landlord, not the renter. But most folks have little choice.
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u/ElectricEcstacy 1d ago
I don't think its gonna be as little as 15k, and if it is 15k I can't imagine the place is very nice.
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u/AEth3lstan 1d ago
One man's palace is another man's hovel. Living in a Ju tek by the sea is not equitable to living in a highrise depending on needs. 15k usd is appropriate for starting out and building savings for a nicer place.
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u/No_Situation_7516 1d ago
I’ve been living in Seoul for 5 years. 15k usd is barely enough for a deposit for wolse, Nevermind jeonse. You won’t be able to get a decent place for 15k usd on jeonse, if at all.
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u/Frequent_Extreme_916 23h ago
15k is just a figurative number. 15k in usd would probably get you a house in very small villages or towns.
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u/Bulbemsaur 32m ago
I don't know in general, but I'm in a 1 bedroom apartment, not a highrise, a 7 story apartment building above a shop, in Suwon, but not central. and my jeonse was something like 50-60million krw. I don't pay any rent, just 60k building maintenance per month and then regular bills. it's not a fancy apartment by a long shop but it's clean
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u/Frequent_Extreme_916 23h ago
They get to invest the money. But since that relies heavily on the market, there are cases of landlords failing to return the original amount and that leads to matters being settled in court. Sometimes they use it as leverage and use it to lend as much houses as possible and then run away. Although those cases are rare, the government does intervene and help the victims even if that happens.
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u/AdWestern8652 20h ago
You say invest, but usually about 90% of them don’t really invest. They may put it into a bank account and hopefully the interest adds up, but you still have to get your money back. That alone is a pain in the ass, you could say all day long everyone’s so honest and upfront, but getting that back isn’t always as easy as you thing. I know both Korean and foreigners friends who had to take their landlords to court because they wouldn’t give back their money. It’s like a Ponzi scheme to, you’re giving them a large sum of money hoping that when you leave, you’re gonna get that back.
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u/Frequent_Extreme_916 17h ago
I know about Jeonse and some view it as ponzi scheme. That's why I added the part about the dependency on the market doing well. Some landlords put them in banks while some invest their money. I'm Korean and my family rented our house while renting a different house growing up.
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u/dkddllldkdk 9h ago
I mean the owner can just sell the property if he loses all his investment no? It’s collaterized
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u/TheSilentSuit 1d ago edited 1d ago
If people had 50-80%. They would probably consider buying it.
But they don't. What they do is take out a jeonse loan. They borrow the money from the bank. The amount they need to meet the jeonse amount. They give that to the property owner. At that point, the place is yours for x time.
During that time, You pay the bank the duration of the jeonse loan. This is kind of a roundabout way of paying "rent". Instead. The bank is the "landlord" and you live in the place for the duration as if it was your place.
After X time, you get money back from property owner, you give money back to bank. And you repeat process
There are traditional rent schemes, where you out a deposit down (key money) and pay monthly. The larger the deposit, the less monthly. With the deposit amount going up to where the jeonse amount could be and it's 0 monthly rent.
Why is it this system? That's a different story and I don't really know why it evolved that way in Korea
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u/ElectricEcstacy 1d ago
that makes even less sense. You have all the bad side of rent while also risking the landlord running away with all the money.
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u/TheSilentSuit 1d ago edited 1d ago
I didn't go into other details. I was just about to write up.
When you give money for a jeonse, the bank (or you or both) have a lien in the property. So if you don't get the money back. You and the bank have a way to get the money back through the property. Though bank is more senior than you in terms of collecting money back.
There is also jeonse insurance you get too. To cover the some if not all of the jeonse money.
There is a whole system around it to protect the banks (and you) when doing jeonse.
A whole way of life and investments are around property and jeonse. And with that. Protections, contract law, insurance, etc.
Its just a whole different way of doing things, that it doesn't make sense to outsiders.
Jeonse loan is probably one of the least risky things a bank can loan money for in Korea. There's a whole ton of requirements (for you and the owner), it's backed by collateral (property), insurance and so on. The banks want to protect their money.
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u/ElectricEcstacy 1d ago
Then I would have to ask, if there are so many protections why is it common to hear about jeonse scams?
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u/TheSilentSuit 1d ago edited 1d ago
Scams exist on everything. Even with all the protections there. You can't make it scam proof because people are stupid.
Rent scams exists. Investment scams. Bank scams. Credit card scams. Etc
Something like jeonse, it's a lot of money on the line. So people thst get hit with it are going to be the loudest. And those committing scams want to get the most bang for the least effort.
And like with any investment, purchasing, rental, you have to know what you're dealing with and how to protect yourself. With jeonse, you work real estate agents, banks, etc. If you work with reputable companies, then the risk of being scammed goes low.
If you work with a guy out of the back of a car in an alley that says, "hey, lease from me, my creditials are good, you don't need to verify the property title, debt, or get jeonse insurance." then that's on you for not doing due diligence.
To be a bit pedantic. People running off with the money after the end of the jeonse terms is more along the lines of failure to return money due to default on the owner. The protections are there for this scenario. The property is collateral. Owner needs to have a certain loan to value ratio. Jeonse insurance to get you back your deposit
A jeonse scam is more along the lines of, you thought you were getting a property, gave a bunch of money to someone, but the property doesn't exist or wasn't there's in the first place. Due diligence prevents this (bank and you)
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u/JohnHenryHoliday 1d ago
Question. What’s the benefit to the property owner? An interest free loan?
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u/TheSilentSuit 1d ago
Basically. It's an interest free loan.
They can use that money to invest in other places to get, potentially, a better return.
Stocks, properties, etc, they could also just park it in a savings account.
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u/JohnHenryHoliday 1d ago
I see. First time I heard about was from someone in Korea 20 years ago. I thought I just misunderstood because I couldn’t fathom giving up rental cashflows for interest free money. But, I guess you see a lot of people in r/realestateinvesting say that being a landlord is a pain in the ass and that parking your money in the S&P is usually a better return than rent, so I think I understand. It would just suck if there was a market crash before the term of the jeonse was up.
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u/TheSilentSuit 1d ago edited 1d ago
It's a bit strange. The way I looked at it. Is that you're getting a lump sum at the begining of the lease to get the effective yearly rent based on a given interest rate.
So let's say, the going rate for the unit is $25,000 for the year. The interest rate is 5%, that means you would need $500,000 up front to get that amount if you parked it in a bank.
Now, you don't have to do that and can take riskier investments. But it was the easiest way for me to kind of understand the jeonse amounts relative to property purchase price.
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u/sweetbeems 23h ago
It's more historical than anything else. People here are mentioning that jeonse loans are now common but originally that was not the case and it subverts the reasoning for why it came into being in the first place. The whole point of jeonse was that normal people in the 60s/70s/80s couldn't get mortgages/house loans.. interest rates was very high and most loans were given to businesses (Korea was really focused on building up their businesses). Jeonse (no jeonse loans) resolved most of these problems because it allowed landlords to receive interest free loans and it allowed tenants to get cheap living.
Now though it's outlived it's purpose imo. Jeonse, jeonse loans.. they're all fine financial instruments but overcomplicated without much reasoning in an era where mortgages are attainable. Either pay monthly rent or buy the house with a mortgage - don't use your savings giving a landlord an interest free loan. It's much better to actually own the property or, if you rent, to invest in the stockmarket.
The government has been trying to encourage people not to do jeonse loans because the realestate market is overleveraged and it's not very healthy for the economy to be that way. Realestate prices are crazy high because of it.
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u/Dhghomon 17h ago
To add to that jeonse is main reason why even wolse deposits are so weirdly high here, because owners see them as just smaller versions of the same loan instead of money that can be deducted from for damages when the renter moves out.
I think it also leads to weird situations where renters refuse to pay for month after month and the owner doesn't bother to try an eviction because the remaining rent in the contract is less than the deposit.
And then there are all the weird cases in between like half jeonse or just wolse with a massive deposit just because. Makes it really tough to track trends in the market as a whole.
I also think it habituates people to the idea of handing over huge sums of money to strangers which makes them more susceptible to financial scams.
In any case, it's definitely unnatural (if it wasn't then lots of other countries would use it) and has a ton of weird side effects.
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u/Shrimp123456 14h ago
It's like recently places have discovered that they can 2mil won a month AND 100mil wolse key money because why the hell not
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u/bingo11212 1d ago edited 1d ago
Living the Jeonse life here..
160 mill of my own money.. down.. Loan- 180 mill.
Paying around 650k a month in interest. Options are limited though. Living in a (newish) villa in Seoul.
Have around 200/210 mill atm for a downpayment in about 16 months but as we hope to live in Seoul-- this amount is miniscule. Family of 4 so the place cant be too small..etc
If I were in my home country it would be easy enough to get a mortgage or on the property ladder but not so in Korea..and especially not Seoul. People will say-- then why stay in Seoul.. well that is where our lives and kids lives have been. Much greater access to all kinds of amenities/conveniences.. and of course work..
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u/SeoulGalmegi 1d ago
You can borrow enough for jeonse more easily than you can borrow enough to buy a place. Even if you don't much of your own money in or work to pay off the loan, just the interest payments will work out at less than the monthly rent for an equivalent place.
You pay less overall. Significantly less if you're there for 4, 5, 6 or more years.
I don't understand why landlords want to do it now. Tenants? As long as you can secure the amount - absolutely!
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u/jumpingbanana22 1d ago
I think we put down 20% and as a result our monthly interest is like 200k a month and that’s all we pay… it feels like living rent free tbh. Now we have 2 kids and I’m a stay at home mother so we still aren’t saving but imagine having two working adults - without that rent expense, you could save more and more towards eventually buying.
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u/Pretty_Sir3117 1d ago
Only 20% of jeonse transactions are cash, the vast majority are financed with jeonse loans. So yes you’re right to question it but for many tenants they can afford to finance a jeonse but not buying the house. As for the 20% who do have the cash, that’s a more interesting question. It could be that they want the flexibility or dont want to buy at current prices.
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u/NewPower8485 1d ago
Jeonse works for both sides for different reasons. Landlords keep the property (so they benefit from any price rises) while using your deposit as interest-free capital — historically they'd invest it or put it in savings when rates were decent. Tenants who can't quite reach the full purchase price get to live somewhere without paying monthly rent, and get the whole lump sum back when they leave, which avoids a mortgage entirely.
The fraud risk is real though — some landlords take on too much debt or even collect multiple deposits on the same unit. Before signing, it's worth pulling the property's debt history from the local registry office (등기부등본) to see what mortgages are already on it, and stamping the contract at the local district office (확정일자) so your deposit is officially dated. Those two steps are what most people now do before handing over the money.
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u/hangukfriedchicken 1d ago
Do people who contract through jeonse purchase insurance in case the landlord takes your money and triple leverages your entire deposit on the KOSPI and goes bankrupt? What recourse is there if the landlord loses your deposit? What purpose would there be in suing if the landlord is bankrupt? I guess They still have the property unless they borrowed against the value of their property too and lost that as well. Just out of curiosity, does anyone have any idea how often people don’t get their deposit back?
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u/eezoBeezo 19h ago
The owner has to sell their property in an auction. The tenants who lived there the longest get their money back first. This just happened to a villa across the street. All but two tenants left. I guess the remaining tenants decided to stay under the new landlord or are waiting to get their deposit back somehow.
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u/4LegsGood_2Bad 9h ago
Except, even if you are the first to register your Jeonse on a property, if there are later tax claims on the property that jumps ahead of you. This happened to me and my wife. In the end we got our money back but barely.
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u/Grandmaster-Ji 1d ago
Jeonse made sense during 1970 to 1990s. But not now. They should get rid of it because there are too many jeonse scams. Korea is the only country with this "wicked" system.
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u/ElectricEcstacy 1d ago
that's why it's so confusing to me. It's so obvious that a huge amount of people will run off with the money and korea is the only country with this system.
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u/Frequent-Double-7702 1d ago
The worry is generally not that people will run off with the money. It's that they'll lose it by investing it poorly and be unable to give it back.
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u/hangukfriedchicken 22h ago
It’s still only 2% of total joense contracts. The vast majority still end with the tenant getting their deposit back. Still, would suck to be a statistic no doubt.
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u/hangukfriedchicken 1d ago
I would definitely prefer the more costly but legally safeguarded weolse system. If you can’t afford $700-$1000 a month for rent you shouldn’t be living in Seoul.
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u/bucheonsi 23h ago
I think what happens often is a lot of people borrow the money from family, then they practically live rent free.
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u/hangukfriedchicken 22h ago
That’s definitely the lure, but imagine someone loses your 200K deposit. You have no recourse legally, the bank gets first dibs on the property, and you still owe the bank 200K. Tragic.
I read tens of thousands of people between 2025-2026 alone had this happen to them. This is 2% of all jeonse contracts but damn, imagine being a statistic.
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u/bgotseoul 1d ago
Because it’s not 50-80% and they borrow the amount from the bank and don’t actually have it.
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u/The_Cruncher88 1d ago
You think there are people paying 80% lmfao
Maybe don't use chatgpt for your stats.
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u/ohnoes_wongway 1d ago
Well, first off, from what I've heard, there wasn't as much fraud back in the day. Banks used to offer reasonable rates for parking money so as the owner, you could earn decent interest easily. Also, for the renter, they have flexibility to move around to move to areas that have good / better schools for their kids.
Also, a lot of Koreans simply don't want to pay a lot of rent for various reasons -- wages/salaries being low is a primary one. What a lot of people do is live at home for a number of years and save up a lump of cash and then don't eat into it as much by doing jeonse.
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u/Parking-Location2841 22h ago
Jeonse fund loans allow people to borrow money for a jeonse deposit at a relatively low interest rate. You would understand this if you were to rent a house in Korea yourself. Generally, opting for jeonse is much cheaper than paying monthly rent. That is why so many people prefer jeonse whenever possible.
Furthermore, thanks to this jeonse system, monthly rent in Korea is quite affordable compared to other developed countries. If monthly rents rise, people simply switch to jeonse, which naturally keeps rent prices in check. Ten years ago, I stayed in an area called Seacon Bangkae in Bangkok, and the rent there was more expensive than in Seoul, even though it wasn't even in the city center. People might assume that Seoul's rent is as high as Tokyo's, but it is actually much cheaper. It is all thanks to the jeonse system.
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u/satoudyajcov 21h ago
It's not cheap of you count (as you should) the opportunity costs associated with investing the jeonse amount yourself. It's, in effect, a subsidy you're giving to the landlord so they can take the capital and reinvest somewhere else. That spread is the spread you lose.
When you account for that, you may be even paying more than a rental (that doesn't require a huge investment amount).
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u/AttitudeImportant585 21h ago
landlords take jeonse to buy more apartments. this system causes housing prices to rise, and rent/jeonse along with it. its a vicious cycle
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u/Parking-Location2841 20h ago
Those are just possibilities. Anyway, keeping money in the bank yields miserable interest rates, and investing in stocks or Bitcoin is far too unpredictable—no one guarantees success. At the very least, doing this is a much better deal than paying expensive monthly rent instead of keeping that money in the bank.
In fact, I would like to ask the opposite question: how on earth do people save a large sum of money in places like Europe, where they spend more than half of their salary on monthly rent? Even though monthly rent in Korea is much cheaper relative to income compared to Europe or Japan, people still choose jeonse because even that rent feels like a waste of money.
On top of that, income taxes in Europe and Japan are much higher as well. If a system like jeonse existed in Western countries, everyone there would have opted for jeonse too.
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u/satoudyajcov 20h ago
No offense, but your answer sounds like a cop-out designed to rationalize the conclusion you already have. My comment was about opportunity costs. Those are very real and you can't wave them away. And, again, rent is not that cheap because you have to cound those costs.
Also, let's not fight with the evidence: a low-cost investment fund has been one of the safest ways to accumulate capital.
Edit: typo
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u/AsianDudeUSA 21h ago
Yeah but if jeonse is nearly the price of a house and you get a low interest loan for the jeonse why not just get a low interest loan for a house yourself..? It just feels kind of roundabout
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u/Parking-Location2841 20h ago
They just want to rent the house to live in for a while and don't actually want to buy it. It's simply an intermediate step toward eventually buying their dream home. Or, they want that house but can't afford to buy it even with a loan. These are the only two cases.
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u/sundriedbonito 11h ago
because it's not 50-80% of the property
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u/Prestigious_Fig_8076 11h ago
Even if its 25% of the property. its insane. And yes, sometimes it is
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u/Narangd_Cider 1d ago
They don't have a large sum sitting around for their jeonse payment or to be used for an outright purchase. Vast majority of people who do (or did, since jeonse is finally dying out) it get a jeonse loan either partially or wholly, which traditionally had a lower interest rate. So jeonse exists because people don't have money to buy (or can't get a loan big enough), and monthly rent (weolse) has always been shunned in Korea.
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u/Appropriate-Plate550 23h ago
Bc in Korea they don’t do 5%-20% downpayment like US. You’d need a lot more… and housing in Korea is expensive, young couples do not have that money
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u/ehangman 22h ago
Simply, jeonse works because it effectively converts unsecured borrowing into secured financing, reducing costs for both parties.
Let’s assume the jeonse deposit is 50% of the property’s value, with an 8% interest rate on unsecured loans and 4% on both jeonse loans and mortgages.
By using the security provided by jeonse (I’ll skip the details of the guarantees here), the tenant can live in the property at an effective annual cost of just 4% × 50% = 2% of the property’s value.
Meanwhile, the landlord only needs 50% of the property’s value in cash to buy the property. If that amount is financed at 4%, the effective financing cost is also just 2% of the property’s value.
Essentially, both parties benefit from lower borrowing rates through collateral, while the landlord also receives an interest-free jeonse deposit. It’s a win-win in terms of financing costs.
Now, suppose we replace jeonse with monthly rent. The tenant would need to pay rent equivalent to a 4% annual return on the property’s full value for the landlord to achieve the same financing economics. That effectively doubles the tenant’s housing cost from 2% to 4%, while the landlord’s financing requirement also doubles.
That’s the basic idea. The numbers are just rough assumptions, but the underlying principle is how jeonse can reduce financing costs for both sides.
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u/ElectricEcstacy 20h ago
the idea of turning unsecured borrowing into secured financing is what happened in 2008. Kinda just sounds like a system designed to start a real estate spiral.
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u/ehangman 18h ago
Quite the opposite. I was talking about borrowing costs, not the ability to provide collateral. I should've explained that better. Jeonse effectively creates collateral through tenants who don't own assets themselves.
Why didn't other countries develop this system? Korea was essentially reset by war. After the war, Korea had to rebuild its entire housing stock from scratch, and its financial system was effectively reset. (Before that, in overcrowded Seoul, there was even a time when people paid rent weekly. Jeonse never really took root in some of Korea's islands experiencing population decline. In those places, you simply have to pay a full year's rent upfront to lease a home.
)
Those days are coming to an end. Ironically, Jeonse was one of the mechanisms that helped protect Korean households' disposable income. Now, as the system fades..
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u/PoPoCucumber 1d ago
Most people choose jeonse because they can't yet afford to buy a home, but they can cover the jeonse deposit, either from savings or with a loan. That isn't always the reason, though. Some people simply decide that jeonse is the smartest financial move given current market conditions. Home prices overheated, comparing potential interest gain from savings to rent prices, etc.
Rent vs Jeonse vs Buying
In the end, the choice comes down to each person's financial situation and priorities in the current market.
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u/JeeyoungMoon 1d ago
안녕하세요, 이 제도를 설명하려면 시대상을 설명해드려야합니다.
예전 한국이 급격한 성장세에 있을 때 만들어진 제도입니다. 저는 40대인데, 제가 어린아이였을 때 통장의 금리는 최소 20% 이상이었습니다. 나라는 급격하게 성장을 하고 있었고, 어디에 투자해도 돈이 크게 불어나는 시기였습니다.
이때는 돈을 일정기간동안 '묶어두는' 것이 큰 투자였습니다. 전세는 집값 만큼은 아니지만 꽤 큰 금액을 2년간 주인에게 묶어둬야했습니다. 집주인은 그 돈을 가지고 원하는 어느 곳이든 투자할 수 있었습니다. 집에서 살고자 하는 사람은 자신이 가지고 있는 한정된 돈으로 2년간 안정적인 주거를 보장받을 수 있었습니다. 그리고 월세와 달리 돈을 그대로 돌려받을 수 있었습니다. 인플레이션을 고려하면 전체 가치는 떨어질 수 있었으나, '그대로 돈을 돌려받는다'는 관점에서는 월세보다 훨씬 매력적인 제도였습니다. 집주인과 실제 주거인 모두에게 맞아떨어지는 제도였으므로 그 제도는 꽤 오랜시간 유지되었습니다.
하지만 한국의 성장세는 크게 침체되었고, 집값 또한 굉장히 크게 치솟으며 전세제도는 더이상 예전의 메리트를 가지지 못하게 되었습니다. 집주인들은 '전세 돈'을 받아도 딱히 투자할 곳을 찾지 못했기 때문에(이것은 강력한 부동산 규제 제도도 한몫을 합니다) 전세보다는 월세를 선호하게 되었습니다. 집이 없는 사람들은 아직 월세보다는 전세를 선호하지만, 이제는 전세로 나온 집을 찾기가 정말 어려워졌습니다.
한국의 특이한 '전세' 제도에 대해 이해하는 기회가 되시길 바라겠습니다. :)
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u/coccyxdynia 1d ago
The way I understand it is that most people are getting a loan for the jeonse. For someone to buy a home, that means they have to take out an even bigger loan. Also it wasn't as risky before but it seems like it's becoming a higher risk as landlords put that money into riskier investments, thus likely the era of jeonse will end eventually.
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u/BigFaceBass Busan 1d ago
Property values don’t historically go up like you see in some western countries. Only since the pandemic has there been a huge increase and that’s not typical. I live in an apartment building built in the 90s (jeonse). It’s in a nice area but the buildings and amenities are definitely dated. Owners of individual apartments can upgrade the inside… but living here will never have modern plumbing or a gym or sufficient ev charging, etc.
So as these complexes age, the owners will make less and less on a sale. Eventually, the government will decide that it will need to be redeveloped and existing owners will all get bought out. That’s often a decent pay day for them… but there’s no sure way to know when redevelopment will be triggered.
So ownership carries more risk than you’d typically find in a property market like the US where prices are always going up. If you aren’t able to wait out a redevelopment event, you could end up losing money.
Again, this has all kinda been flipped on its head over the last decade. But that’s not been the case in the years prior.
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u/OrneryPineapple4131 23h ago edited 23h ago
It's basically a private finance for the landlord. Landlord wants to obtain more property, but he already has debt to the limit by owning the previous one. So he leases his property in Jeonsae and buys new property. Tenant gets to live in the property without having to pay rent, and landlord gets a chunk of money from the tenant, so he can invest into another property. All is good until the tenant wants to leave and landlord has no money to pay the tenant back and also, can't get a replacing tenant. That's when this becomes a fraud case.
And there's also a real scammers who deliberately lease their fully mortgaged condos as jeonsae, collect deposit from numerous tenants, and just vanishes. In this case, the landlord is just a front man hired by the real scammers, and sometimes even the real-estate agent is also hired by the scammers.
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u/ResponsibilityNo3463 23h ago
In Korea, nobody wants to pay rent when they can do 전세. So unless this system breaks down in a day, if a landlord did traditional rent, they won’t earn ANY money.
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u/duckhoon 22h ago
Most people who do jeonse simply don't have enough money to buy yet. A jeonse deposit is big, but it is still much less than the full price of the home, and you pay no monthly rent. You get the whole deposit back when you move out, so many people see it as a way to live somewhere while saving for a purchase. The landlord, on the other side, uses the deposit money for their own investments or loans, and that was a big part of why the system became common. I agree the fraud and deposit-return risk is real, and that is one reason more people now choose monthly rent or are more careful about checking the property first.
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u/HuckleberryHefty4372 19h ago
Deposits for monthly rent is way too high it's like almost jeonse. So it makes no sense to rent. That is the issue. Also very difficult to find monthly rent places.
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u/Reasonable_Task3765 19h ago
Apparently jeonse is still sought after but becoming more rare. When I moved here three years ago I was told it was the norm, but now I’m hearing Jeonse apartments are harder and harder to find. We ended up just buying a place with the Jeonse money. I was never comfortable having that much cash tied up but it was definitely dirt cheap to live for two years. We would have paid way more in rent.
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u/Chemistry2674 18h ago
That is a house owner's strategy. The owners want to use the system. Not for renters.
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u/WittyPolitico 13h ago
On the flip side, Koreans ask how foreigners can build wealth without Jeonse, by simply frittering away the monthly rental money.
Strangely, you will notice that South Korea's homelessness problem is tiny compared to countries with $3000 a month in rental costs. In some countries, they have large cities where people pay 50% to 75% of their income on monthly rent. Korea doesn't have that problem.
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u/Prestigious_Fig_8076 11h ago
Fair enough but they have much worse employment and other problems. It evens out. Homelessness rates in the west are usually do to addiction, mental health, lack of family support, trauma and lack of medical care. Not a lack of jeonse.
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u/oglop121 12h ago
it's cheaper than rent...if you can get the jeonse loan you need from the bank
where i live (luckily, i own my apt), jeonse is 6억 and rent is 1억/220만
on a 4억 jeonse loan at 4% interest, (i'm assuming they have some money saved already), they'll pay the bank 133만.
as you can see, much cheaper
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u/BestNegotiation 8h ago
I wonder if it’s easier to borrow money for Jeonsae than for property purchase these days. But before, Jeonsae was a much lower portion of property value. But because interest rates in saving were so high, landlords were happy to get fixed some upfront and return it later. These days, a lot of landlords actually want monthly rent. But because jeonsae is so entrenched in society and adversity to monthly rent, most renters actually prefer jeonsae
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u/CG_LiFeTa 2h ago
If landlords do traditional rent, they will make the more money, but instead of renting it, they use the jeonse deposit as leverage, if not they mostly use it to pay out any mortgage for the house, in meanwhile, due to the jeonse, there are not much demand for a renting a house, it makes the ceiling of profit ratio for renting much less then any other country.
In same time, the deposit system for renting a house in korea is little different, they require you to deposit around 10-12 months of rents for deposit.
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u/scarletNgold 17h ago edited 9h ago
This may be a bit in the weeds but let me try to explain.
Rewind to the 1970’s. Credit and Capital was scarce in Korea, population was rising and urbanization was increasing, creating a big housing shortage in Korean cities. The answer was multi-unit dwellings (apartments). However, those are pretty capital intensive to build. The developer needs to buy, merge several tracts together, and then build. Risky and very expensive. The time you start the project to end, if you do it traditional way, you’d be continually getting loans from commercial lenders, say, Deuche or Goldman, at like 15% APY back then. That’s a tall order for any big Korean developer back then.
Government does not want to use its own money to get this process going or back any of the corporate financing - any available government debt capability was being poured into backing Chaebols or building infrastructure.
They decide to legally elevate Jeonse, which was an existing but smaller scale idea from the feudal Joseon era. The cycle here goes like this:
The developer builds multi unit dwelling, can pre-sell multiple units to key investor buyers who are rolling their previous jeonse deposit into newer investments. (Exactly as these current villa kings do). The mechanics is exactly as current day: the lessor (landlord) gets jeonse deposit from say, 2 existing properties. They use that deposit to pay into pre-construction purchase of 2 more newer units. When the lessee of the 2 existing units want out, they can just take the new tenants jeonse into paying existing liability - thereby always being able to roll their two existing unit’s amount of deposit into fresh capital investment. Next cycle they have 4 jeonse, next cycle 8.
Why was this good in the eyes of the government?
-The developer can ensure they sell out their units.
-Risk is bourne by individual investors (jeonse owners), which in turn is aggregating smaller risks from jeonse renters.
-None of this risk is carried directly by financial institutions, basically it’s a many small private credit pyramid scheme that rolls up to big one.
-The healthy amount of greed gets these disorganized land tracts into organized, giant lots you can build these big apartments in. Basically eminent domain done by private sectors.
-Jeonse renters are basically lending out money to jeonse owners, who roll it and eventually ends up as interest free loan for the builders, essentially expanding available capital through non official channels.
At this time, given the rate of economic expansion and interest rate made this particularly a good deal. If they had a rent system, even if the rent income was more profitable in present value (though it wasn’t due to peculiarities at the time), the capital expansion would be too slow. This jeonse basically allowed capital expand faster.
Now then, why is this still a thing?
Korean financial instruments now caught up, we have mortgage etc. HOWEVER, there’s a stronger Loan-to-Value requirement on loans. You can’t get like 10-20% down on a mortgage or a FHA / jumbo loan like US. Often you see LTV of 40% or better. (Meaning 60% down) This effectively shuts out many people who haven’t saved enough for a home mortgage. Jeonse then still fills this gap of people who have some amount of capital saved, but not enough.
Overall, for the owners, Jeonse actually still works out ok, because they average 5.5~6% return on assets for their holdings when all told.
Owners do it because they think they can roll the lump sum cash into useful things and like the flexibility of holding big bag of money. Renters do it because they feel like they are not losing money (notionally), and also building a nest egg still, and because that’s their only entry into decent apartments given they can’t put 50% down for a mortgage. Developer likes pre-selling a large share of the units before breaking ground. Government doesn’t know how to wind this down, and know if they touch it everyone will be angry. So the system continues.