One of the many things that amazed me when I first came to Korea is it’s unique housing rental system. My husband, who is a Korean, explained the system to me several times and I have to admit it took me awhile to fully grasp the concept. What was so mind-boggling about it? Find out below.
Did you know that in Korea, you can stay in an apartment or house rent-free? Yes, that’s right! You can actually stay in a property without paying monthly rent for at least 2 years.
This is the unique housing rental system in Korea called “Jeonse” (전세), which literally means ‘money in full’.
But what’s the catch?
You’ll have to pay a lump-sum deposit amounting to anywhere from 50% to 80% of the market value of the rented space.
But where do you get that amount? Don’t worry, the transaction is essentially a loan, with the tenant as the lender, the landlord as the borrower, and the house as the collateral.
Once jeonse is paid, you are allowed to stay in the property for 2 years rent-free, with no additional monthly payments required except for the utilities and city services. After the 2-year contract, the landlord gives back your deposit in full, provided there are no major damages to the rented property. In case of existing damages, the damages must be fixed according to the landlord’s standard before the deposit is returned. In some cases, deductions can be made from the deposit for repairs and damages.
But you may be asking now, what’s in it for the landlords? Why would they have their property borrowed rent-free?
The answer – the bank interest. The deposit money actually goes into the landlord’s bank account for the duration of the contract, and they can then collect the interest from that amount.
This sounds absolutely win-win for both parties, right? But you still have to take necessary precautions in your deals because after all depositing a large sum of money comes with risks. Make sure to check the property’s registration and double-check if there are no unpaid loans.
Since Jeonses are basically loans, you have to note that sometimes loans don’t get paid back. Although there are some protections for the jeonse tenants, like in case the landlord defaults on the contract and doesn’t return the jeonse on schedule, the tenants are entitled to get it when the house is sold; or if the landlord is unable to return the deposit, the tenant can stay until the money is returned, you still have to be careful not to end in a pitfall of stress.
This unique rental system dates back to 1876, but gained popularity in the 1960s and 1970s during Korea’s rapid transformation to urban, industrialized economy. It was the perfect solution to the need of housing rural residents arriving in cities and financing economic activity.
Another real-estate-rental term is “wolse” which means monthly payment. In this type of rental system, deposit and monthly rental are combined. Deposit is smaller than that of “jolse” and the amount is usually negotiable alongside the monthly rent. The trick here is to increase the amount of deposit money in order to lower the monthly rental charge. The contract period is also more flexible for wolse, contract is usually 1 year but the tenant can request flexible terms.
In case of damages to the property, tenants are expected to fix the damages before they can get their deposits. Landlords don’t usually deduct fees from the deposit, the tenant can expect to get the full amount of deposit when the contract ends.
In case the tenant is unable to pay monthly rent, the amount is deducted from his deposit. The tenant gives an eviction notice when the remaining deposit money amounts to two-months worth of rent.
As seen in the pie-chart above, jeonse is highly favored over wolse. It has worked well for many years mainly because rising home values and high-interest rates made it relatively simple for landlords to take the cash that tenants handed them and invest it in a way that would yield high returns.
In the tenants’ perspective, jeonse makes a lot of sense since they can get loans with low bank interest rates, their monthly payment amounts to roughly one-quarter of what it would cost them to rent a comparable apartment.
Don’t you just love to have this rental-system in your country? I definitely do.
Do you have any unique housing rental system and practices that are unique to your country? Share your thoughts with us. We’d love to hear from you.