The 'Rental Trust Program' aims to enhance the security of rental deposits and convert monthly rent into jeonse (long-term lease) agreements. However, there are concerns about how effectively it can attract landlord participation, despite the promise of annual returns around 4%. In non-apartment buildings, where the conversion rate from monthly rent to jeonse is high, the program may not be as appealing compared to existing rental income. Additionally, landlords of current jeonse properties may face cash flow issues during the deposit return process.
Set to announce its first recruitment notice at the end of next month, the Rental Trust Program involves a tripartite contract between landlords, tenants, and the Housing and Urban Guarantee Corporation (HUG). Under this arrangement, tenants deposit their jeonse money with HUG, which manages the funds and pays returns to landlords while directly returning the deposit to tenants at the end of the contract.
According to government examples, if a tenant deposits 200 million won, the landlord could receive approximately 730,000 won monthly at a 4% return. Even in the event of investment losses, HUG guarantees the tenant's deposit and the agreed returns to the landlord.
The key issue is whether landlords will have sufficient incentive to abandon their current monthly rent in favor of the trust program. Preliminary surveys by the Ministry of Land, Infrastructure and Transport indicated that interest in participation remains around 20% when assuming a 4% return. This is particularly concerning in non-apartment buildings, where the operational returns may be lower than existing monthly rental income.
Kim Deok-rye, head of the Housing Industry Research Institute, stated, "If entrusting the deposit for a 4% return is not more attractive than converting to monthly rent, it will be difficult to expect voluntary participation from landlords."
Another challenge arises when existing jeonse properties transition to the trust program. The new tenant's deposit will be held by HUG, making it unavailable for returning the deposit to the current tenant.
Seong Chang-yeop, president of the Korea Housing Rental Association, noted, "Existing jeonse landlords often use the new tenant's deposit to return the deposit to the current tenant. However, with the trust program, they cannot utilize the new deposit. Currently, it seems likely that only existing monthly landlords or rental business operators will participate."
He added, "If there is a commitment from new tenants to deposit their funds in the trust, mechanisms should be established to recognize this as a repayment source, such as easing regulations on deposit return loans to prevent cash flow interruptions."
The government is also considering measures to increase participation, such as reducing tax burdens on rental income and expanding deductions, as well as exempting registered rental business operators from mandatory deposit return guarantees.
However, there are concerns that merely increasing returns or tax benefits may not be sufficient. Industry experts suggest that limited financial support measures for returning existing tenants' deposits should be based on confirmed rental trust contracts for new tenants.
Providing a certain level of additional returns for non-apartment buildings with high conversion rates is also seen as a potential solution. However, there are fears that if returns are maintained at market conversion levels or if comprehensive property taxes and acquisition taxes are broadly reduced, tenant protection policies could be distorted into landlord support measures.
Market analysts emphasize the need for mechanisms that protect tenant deposits while addressing cash flow gaps that arise during the transition process. Kim stated, "While the intention of the program to protect tenant deposits is significant, we need to assess whether it can function effectively within the structure of Korea's jeonse market."
* This article has been translated by AI.
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