Jeonse prices are about to jump...

The Moon government has been messing up the real estate market real good. They are "trying" to keep the prices under control but so far all failed. One can't help but think that they are doing this on purpose in order to increase their tax revenues or who knows what their agenda is. So far, they have rolled out 22 sets of regulations in 3 years. None of them worked to slow down the market. If anything, they made it worse. Yet, the Land and Infrastructure Minister, who is behind most of this madness is still in position. Imagine a head coach of a sports team still not fired after 22 straight losses.

Anyhow, with the latest regulations, it will be difficult to sell, buy and keep properties as all three will be heavily taxed. It affects not only investors but first-time home buyers too. Still, keeping properties is the best option as that costs the least in taxes. So what will happen is the supply side of the market will shrink as very few would be selling. At the same time, there are many panic buyers on the market, both investors and first-time home buyers. They think they must buy something in a now or never manner, before the government comes up with yet another crazy policy. So those few that do sell even in this market, can keep raising prices because there are many that want to buy. This will push the prices further up. And this is where we come to rent prices. The purchase price increase already pulls up the jeonse with it. Landlords would also want to have their tenants cover the increased property taxes so they charge more in rent. And mainly, since there will be a supply shortage, many would remain in jeonse, instead of purchasing.

This will mainly affect the designated speculative zones but also nearby areas. So pretty much all of Seoul and Gyeonggi-do. Refer to the attached map. And can even affect places that are not even close to these zones, although to a lesser degree.

Expect jeonse prices to jump 10-20% at least, up to 80-90% of the purchase price of the property. Actually, jeonse prices have been already going up for the past year or so. But now will get another boost.
Monthly rent prices will also increase, although not as much as jeonse because the two markets are different. Still, if the lump sum rentals go up, it must affect the monthly rentals too.

I may be wrong but I'm not the only one thinking like this. Many experts predict skyrocketing jeonse prices.
If you live in Jeonse, you better start thinking how you would cover a significant raise when your current lease ends.

I hope it's not true, but looking at recent history.......

My husband and I do not make a lot together, but we make enough to not qualify for housing assistance such as the LH program and other programs for newly married couples. He is a chef and I am a public school teacher. He makes maybe 200,000 won a month more than I do. I am scared that we will never be able to build/buy/use jeonsae or even rent a place on wolsae that fits our (maybe more me) needs, in the future.

So many individuals with loans and debt add to that problem, It seems that it is pretty easy to qualify for loans in Korea, though I have no first-hand experience. My husband has 2 or 3 large loans to cover some (not well thought out in my opinion) real estate investment prior to our marriage....it does not seem to be the same kind of terms that I would be used to for a loan in the USA. This makes me angry because my thoughts would be to pay even little amounts, whenever we can, to pay it off more quickly because of interest accumulation. He doesn't see it this way.....so maybe I am just not really understanding the way loans work here.....

So with the housing prices rising, salaries not increasing or in some cases decreasing, other costs of living elements increasing, and high household debt....the future seems to be financially strapped already....not just for me but for most and not just in Korea.....if I were to move home with the same salary I had prior to coming to Korea I would not be able to have a place of my own, as I did before I left.....

And people wonder why childbirth rates are decreasing so sharply in Korea, but all over the world as well....even the USA has had a decrease, albeit less noticeable

Financial education is a must for all, I would say

I've also followed this with keen interest as I was considering buying but the whole market here is so messed up (which you have summed up very nicely). Jeonse is still the best way to go for most even with the % continuing to increase. I did notice that a lot of the places we looked at were looking for the tenants to take out 3 year jeonses on the apartment/house. However, I did find that the banks were very competitive with the rates on jeonse loans...at the moment.

Korea is a great place to own property.  We bought a 440,000,000KRW
apartment here two years ago.  It is now valued at about 550,000,000KRW.

We got our mortgage just before the loan-to-value ratio went up.  It is
now something like 60%. Very difficult for younger, poorer people to
get into the market.

I agree with the new laws penalizing multiple home owners. Pricing
people out of the market for a return on investment isn't cool.

Where did you buy?

Where did you buy?

Incheon

Cool.  I just saw the map. I'm in 부평구.  A yellow zone sandwiched between
two red zones.  That's gotta be good.

Just out of interest SPQR, at what point would you sell, or is that not an option?

my husband is currently in a legal fight over a contract with his real estate investment in incheon ...something about the developer not holding up their end....he has quite a bit in loans for it and if he wins his contract will be canceled and his money returned along with 30 other people too.....it's for a small shop and an officetel in the same building and being in an up and coming area I am torn on what I would even do in this situation.....it could be good for the future....especiall y the officetel and we could stay there if we needed to....if we left Korea and came back for example (not 100% sure on his contract though, so maybe that's not an option and not sure he knows either) and it could get a return on investment in the future....but he owes a lot on the other hand.....and would always be playing catch up if he had tenants.....they pay him the deposit and he uses that to pay the loans....but then he has to pay back the deposit later if it was jeonse...wolse similar but different but I guess this place only allows jeonse or something....to keep or to get the contract canceled....not an easy question....

Just out of interest SPQR, at what point would you sell, or is that not an option?

This apartment is our dwelling and business.  We have a study room.  For the
time being we are quite happy with the way things are.  We are paying down
our mortgage and increasing our equity.  This asset is appreciating in value
much faster than other investments.

I'm not sure about the current taxes and fees even if we wanted to sell and
buy something else.  Just for this place the transfer fees alone were about
6,000,000KRW.

How's the corona virus affecting trade?

Thanks for being so candid SPQR. We went with jeonse just due to the ridiculously low interest rate we got on the loan. You have made me wonder though where best to put our money...especially with that kind of appreciation in value. Hopefully, we (SO and I) can work ourselves in to a similar position to you guys in the next year if we do decide to buy a place.

Jeonse is dangerous. The music will stop one day. It will be the 'little people' who get crushed the most......

Jeonse is dangerous. The music will stop one day. It will be the 'little people' who get crushed the most......

Dishonest landlords
Some landlords may have a large amount of overdue taxes. In such cases, the government may put the apartment up for auction in an attempt to collect the overdue taxes. When the apartment is sold, the government collects the overdue from the profits from the auction.[4] Since national tax (국세) and local tax (지방세) take a higher priority than the tenants, they may lose some or all of their deposit, depending on how much their landlords owes the government.

https://en.wikipedia.org/wiki/Jeonse#:~:text=Jeonse%20(Korean%3A%20%EC%A0%84%EC%84%B8%3B%20Hanja,80%25%20of%20the%20market%20value.

I had a friend way back whose landlord refused to give him back his
key money.  After years of trying to get the landlord to court he finally
did.  The judge asked the landlord why he had not returned the money.
This guy just replied, "Because he's a foreigner." Anyway, the judge
ordered him to repay the money. He never did and my friend had to leave
the country before anything could be done.

Jeonse is dangerous. The music will stop one day. It will be the 'little people' who get crushed the most......

For me mae-mae (buying) is equally dangerous.  Apartments are already unaffordable for most Koreans -who have to take out big loans of up to hundreds of millions to buy them- and prices are continuing to rise. 

The demographics will start to correct the prices anyway in about 15 years or so, but one would hope that the goverment wakes up to the damage high prices are doing to the economy (and to a lesser extent, the birthrate) before this and launches a massive house-building program.

We live in jeonsae in one of the poorest areas of Goyang, Gyeonggi-do and -to buy-our apartment is valued at over 500 million; one of the larger sized units was recently listed at 700 million.  These prices are just laughable and -unless they miraculously decide to increase the minimum wage to 30,000 an hour this week-  unsustainable.

Dishonest landlords
Some landlords may have a large amount of overdue taxes. In such cases, the government may put the apartment up for auction in an attempt to collect the overdue taxes. When the apartment is sold, the government collects the overdue from the profits from the auction.[4] Since national tax (국세) and local tax (지방세) take a higher priority than the tenants, they may lose some or all of their deposit, depending on how much their landlords owes the government.

https://en.wikipedia.org/wiki/Jeonse#:~:text=Jeonse%20(Korean%3A%20%EC%A0%84%EC%84%B8%3B%20Hanja,80%25%20of%20the%20market%20value.

I had a friend way back whose landlord refused to give him back his
key money.  After years of trying to get the landlord to court he finally
did.  The judge asked the landlord why he had not returned the money.
This guy just replied, "Because he's a foreigner." Anyway, the judge
ordered him to repay the money. He never did and my friend had to leave
the country before anything could be done.

Looks like the landlord made the right call on that one then (though obviously not the moral one) It's shame they couldn't have sent in the 'can't pay we'll take it away' boys.

We went with jeonse just due to the ridiculously low interest rate we got on the loan.

What's the interest on a jeonse loan these days?
The base rate is at an all time low (thanks to Covid 19) so that's why the loan rates are down.

What's the interest on a jeonse loan these days?
The base rate is at an all time low (thanks to Covid 19) so that's why the loan rates are down.

1~2%  depending on your circumstances.  Even the interest on a loan of 100 mil + is usually cheaper than wolsae.

I recently hit up Daegu Bank for as much as they'd loan me so I could buy an apartment (no jeonses in my area at the moment probably due to speculation on what some new development will do to property values). I think it came out to about 150,000,000 won. The interest is substantially lower than rent, and after 3 years when I can make more than the agreed upon monthly payments, that interest ought to go down even further pretty darn quick.

If you know that you're going to be in Korea for more than 4 or 5 years, jeonses and outright purchases are really the way to go!

1~2%  depending on your circumstances.  Even the interest on a loan of 100 mil + is usually cheaper than wolsae.

Thanks. Many years ago I had a jeonse loan which was pretty cheap at the time. We even got a lower rate because I was a foreigner. Back then our interest rate was slightly lower than the base rate. I was wondering what the rates are these days since the base rate is 0,5%.

To each of their own but I personally think owning is way better. Jeonse is a nice stepping stone that you can take advantage of to save more money. But don't get stuck in it for too long because you are preventing yourself from banking some serious dough over the years. Moreover, you have to keep shoveling money into your landlord's pockets every 2 years. Or keep moving around to find a place that fits your budget. Among the people I know, those that don't own their place, seem to be stuck financially and not getting ahead. I know it's not a universal rule but it is certainly true around me.

We ended up doing weolse for 2 years and then jeonse for another 2. At that point, we were still planning to do jeonse for 2 more years but there weren't many listings. Found a place that we liked and turned out it was on sale as well. Since the jeonse price was not far from the sale price, we decided to buy. Best decision ever.