South Korea’s unique “jeonse” rental system, which allowed tenants to live rent-free for two years by putting up a deposit worth as much as 70% of a home’s value, is facing challenges as home prices have fallen by 12% and jeonse prices have fallen by 7% over the past two years. This has caused a significant strain on both landlords and tenants, threatening to undermine trust in the system and exacerbate risks in the property market.
For years, the “jeonse” system was a win-win for residents and owners. As home prices rose and interest rates were high, tenants were able to take out loans to raise their deposit, which was cheaper than paying rent. Meanwhile, landlords received an interest-free loan, which they could use as they pleased. The scheme was particularly popular among people in their 20s and 30s who could not afford the full price of a home but could use the system to get a toehold into the Korean dream of home ownership.
However, the downturn in home prices has left overextended landlords struggling to return deposits. This has hit younger tenants particularly hard, many of whom have taken out loans to pay for their jeonse deposit, and are now facing significant debt burdens as they must repay their loans without receiving their deposit back.
Many tenants are regretting not getting insurance for their jeonse deposit when they signed their contracts. Yoo Ha-jin, a 28-year-old tenant, signed a jeonse contract in March 2021 without getting insurance, and her bankrupt landlord has told her that the property will be auctioned, and she can expect to get around 45% of her deposit back at most. As a result, she will owe at least 33 million won ($25,000) for the loan she took out on her jeonse contract, which expires next