Jeonse prices in major cities higher than sales prices 4 years ago

Jeonse prices in major cities higher than sales prices 4 years ago. May. 17, 2016 08:00. by 김재영기자 redfoot@donga.com.

Jeonse prices for one among five apartments in the Seoul metropolitan area and five metropolitan cities of Busan, Daegu, Gwangju, Daejeon and Ulsan have surpassed sales price of four years earlier. Jeonse is a Korean unique rental system in which the lender deposits lump-sum money with the tenant instead of paying monthly rent. This means that people who bought an apartment four years earlier are now seeing that their houses could have been bought at a lower price that their Jeonse prices.

The results were released by Real Estate 114 on Monday, comparing jeonse prices of around 5 million apartments in May in the Seoul metropolitan area and five metropolitan cities with their sales price in May 2012. Among the surveyed apartments, jeonse prices of 18 percent, or 889,487 units of all apartments were the same with or higher than their sales prices four years earlier. The trend was more pronounced in metropolitan areas (33 percent) excluding the Seoul metropolitan area (12 percent).

Such a trend is due to jeonse prices having risen faster than sales prices. It is the result of house leasing market trending towards monthly rent and rising demand for moving due to massive apartment reconstructions leading to scarcity of jeonse available units, which ultimately raised jeonse prices.

Actually, jeonse prices of the Seoul metropolitan area have risen 48.59 percent for four years since May 2012. During the same period, sales price growth remained at 2.37 percent. The five metropolitan cities, excluding Seoul, also saw jeonse price growth (32.70 percent) higher by more than 10 percentage points than sales price growth (20.78 percent).

Experts say that since jeonse prices are rising faster than sales prices while monthly rents' share is rising, it could be better for people living in houses based on jeonse to try to buy a house by using low interest rate loans. Yet they should take caution since jeonse price growth is slowing this year. Burdens from a prolonged rise and an increase in newly constructed homes in regional areas have worked to slow down jeonse price growth.