SEOUL, Dec. 3 (Korea Bizwire) — Major banks in South Korea saw their “jeonse” home rental loans increase at a record pace this year amid soaring jeonse rates, industry data showed Thursday.
Outstanding jeonse loans extended by the country’s five major lenders — KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup — came to 103.3 trillion won (US$94 billion) as of end-November, up nearly 23 trillion won from last year.
It marks the first time that the amount of yearly jeonse loans has exceeded the 20 trillion-won level.
Outstanding jeonse loans surpassed 80 trillion won in December 2019 before passing 90 trillion won in May this year and 100 trillion won in October.
Jeonse is a home rental system unique to South Korea, where tenants pay a large sum of money as a deposit instead of paying monthly fees. Landlords profit off of the large deposits before returning the entire amount when the rental contract expires.
The surge was attributed to a sharp increase in jeonse fees in the wake of government measures to curb soaring home prices, including tougher mortgage rules, which resulted in rising demand for jeonse homes in the first half of the year.
The situation worsened in the second half as three controversial laws on housing leases took effect in late July to help stabilize soaring housing prices by better protecting the rights of tenants.
A short supply of jeonse homes, especially in the Seoul metropolitan area, ensued, sending jeonse fees going up further.
The laws guarantee the validity of a house lease contract for up to four years and cap the maximum rent hike at 5 percent in the event of contract renewals.
According to industry sources, there has been a recent let-up in demand for jeonse loans.
Jeonse loans increased by more than 2 trillion won for the fourth consecutive month, but the amount slowed to 1.6 trillion won in November as some banks reined in household loans, they said.
Despite government measures to stabilize the property market, housing prices and rent have been rising sharply in the Seoul metropolitan area, where half of South Korea’s 52 million people live, stoking public discontent with the Moon Jae-in administration.