South Korea’s real estate market has always aroused the interest of the world, however, at the back of the market surface hides a financial tsunami in millions of households. Among the rental systems in Korea, Jeonse, which has been previously promoted as a novel solution to monthly rents, increasingly serves as one of Korea’s main sources of escalating household debt. Has this historical pattern put South Korea housing crisis on the brink of economic collapse?
South Korea Housing Crisis: How Jeonse Became a Double-Edged Sword
Under the scheme, tenants pay a lump sum ranging from 50% to 80% of the market price of a property in one go, with no monthly rent charges.
In theory, this benefits both parties—tenants avoid recurring payments, while landlords invest the large deposits to generate returns. Nevertheless, thanks to increased housing prices, this formerly-solid system has fallen into a financial vise in recent years.
To secure housing, many South Koreans are now borrowing massive amounts from banks to afford jeonse deposits. With property values soaring and loan interest rates fluctuating, the very system designed to provide financial flexibility is now fueling one of the highest household debt ratios in the world.
The Vicious Cycle of Rising Debt
The problem escalated as real estate prices skyrocketed, pushing jeonse deposits higher than ever. A large number of tenants are forced to take up expensive loans, and landlords, in pursuit of investing, invest capital in riskier financial products. This creates a dangerous cycle:
High Deposits High Loans Tenants are forced to borrow large sums to afford jeonse deposits.
Landlords’ Investments at Risk
If landlords mismanage deposits, returning the lump sum after the lease term becomes difficult.
Housing Market Volatility
A downturn in real estate or investment losses could trigger a chain reaction, with landlords defaulting and tenants struggling to secure new leases.
Experts warn that if a significant portion of landlords fail to return deposits, a housing liquidity crisis could unfold, destabilizing the entire economy.
Government’s Race Against Time
Recognizing the growing risks, South Korea’s government has implemented measures to curb excessive borrowing and encourage a shift toward monthly rental contracts. Emerging regulation policies seek to control real estate loans and provide more housing. However, commentators contend that these measures may not be sufficient, and too late.
Restructuring the housing market without causing a crash in house prices can exacerbate financial upheaval.
The Future of Jeonse: Reform or Ruin?
As the debate over South Korea’s rental system intensifies. One thing is clear—jeonse is no longer the secure financial tool it once was. The country needs to develop some mechanism to adapt its housing policies before the fault lines in the system widen into a total state of chaos.
Can South Korea escape the housing debt trap or is the country about to face a new standard of financial chaos? The coming years may decide whether jeonse is an option for building or a case study in real estate history.
