The South Korean government is launching a new housing support initiative that will convert monthly rental properties into jeonse, a traditional Korean rental system. Tenants will be able to live in jeonse at a lower cost than monthly rent, while landlords will receive monthly returns on their jeonse deposits through a public institution.
The Ministry of Land, Infrastructure and Transport announced on August 20 that it will implement the 'Monthly Rent Assurance Trust Project' as a follow-up to the August 13 rapid housing supply measures.
The Monthly Rent Assurance Trust aims to convert existing monthly rental properties into jeonse for tenants. After a tripartite contract is signed between the stabilization organization, landlords, and tenants, tenants will deposit their jeonse funds with the organization, which will then invest and manage the funds to provide landlords with returns equivalent to monthly rent.
The Korea Housing and Urban Guarantee Corporation (HUG) will be responsible for managing the deposit, investment, and return of jeonse funds, as well as recruiting landlords and tenants.
Tenants will benefit from living in jeonse, which is generally less burdensome than monthly rent. The stabilization organization will manage the jeonse funds, reducing the risk of jeonse fraud. The Ministry explained that while the current conversion rate for monthly rent is between 5% and 6%, jeonse loan interest rates are between 3% and 4%, which can alleviate tenants' housing cost burdens.
Since the stabilization organization will handle the deposit and future returns of the jeonse funds, tenants will not need to purchase separate jeonse return guarantees or jeonse loan guarantees, further reducing their financial burden.
Landlords will also benefit, receiving monthly returns on their jeonse funds. The stabilization organization plans to create a housing supply activation fund based on the jeonse funds, which will be used for housing construction projects, generating annual interest income of around 4% to be paid to landlords.
Registered landlords participating in the program will be exempt from the obligation to purchase return guarantees for rental deposits, thus reducing their guarantee costs. Tax incentives for landlord income are also being considered.
Landlords relocating from regulated areas like Seoul to provincial regions will also be eligible for housing pensions. This means they can receive housing pension payments in addition to the monthly income from the Monthly Rent Assurance Trust.
The government plans to promote the Monthly Rent Assurance Trust without restrictions on housing types, targeting both general landlords and tenants through a separate public offering. Initially, the program will focus on homes valued at 200 million won or less, verifying whether the jeonse amounts are excessive compared to market prices and checking for any violations of building regulations.
There are two ways for landlords to participate in the program: they can either apply first and have the stabilization organization assist in recruiting tenants, or they can negotiate the jeonse amount with tenants beforehand and apply together.
Some rental housing purchased by the Korea Land and Housing Corporation (LH) will also be pilot-supplied through the stabilization organization. The Ministry plans to provide 500 units this year to reduce the housing burden for young households without homes.
Details regarding the project procedures, agreements, and monthly income rates will be announced at the end of September. Landlords and tenants interested in participating can apply through the HUG website and its nationwide branches. Applications will be accepted starting in October, with tripartite agreements and deposit payments scheduled to occur sequentially from November. Move-ins are expected to begin by the end of the year.
This initiative is seen as an effort to alleviate the simultaneous issues of jeonse avoidance and rising monthly rent in the wake of recent jeonse fraud incidents. However, securing trust in the return stability of jeonse funds and the operational income rates will be crucial for attracting actual participation.
Kim I-tak, the First Deputy Minister of Land, Infrastructure and Transport, stated, “Through the Monthly Rent Stabilization Organization, tenants will be able to alleviate the risk of jeonse return, while landlords can ease the burden of rent arrears, allowing them to enter lease agreements with confidence.” He added, “As the Monthly Rent Assurance Trust project yields results and becomes more sophisticated, we will explore various contract methods to enhance the health of the rental market, benefiting tenants with the advantages of jeonse living and landlords with rental income.”
* This article has been translated by AI.
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