The introduction of the universal youth jeonse rental program has doubled the support limit for young individuals in the metropolitan area from 120 million won to 240 million won. While this expands housing options for the youth, concerns have been raised about the increased burden of housing price assessments and deposit recovery for public housing providers like LH.
On August 13, the Ministry of Land, Infrastructure and Transport announced the establishment of the universal youth jeonse rental program, separate from the existing youth jeonse rental scheme. The program targets young individuals aged 19 to 39 who do not own a home, relaxing criteria by excluding household income and asset assessments and selecting tenants through a lottery system instead of a point-based system. The existing youth jeonse rental supply and eligibility criteria will remain unchanged.
The most significant change is the increase in the support scale. The maximum support limit for individuals in the metropolitan area will rise from 120 million won to 240 million won. However, the loan-to-value ratio within the support limit has been reduced from 95% to 90%, increasing the financial burden on tenants.
The existing youth jeonse rental program also supports single-family homes, multi-family homes, multi-unit dwellings, and certain qualifying residential officetels. When a tenant finds a property, LH verifies the price, mortgage rights, and priority tenant rights before directly contracting with the landlord and subsequently leasing it back to the tenant.
As the support limit increases, the amount of deposits that the public must manage per contract also rises. This is particularly challenging for villas and officetels, where it can be difficult to determine appropriate sale and rental prices due to fewer transactions and significant variations in individual property characteristics.
According to the Korea Real Estate Agency, the nationwide jeonse rental rate for officetels in the second quarter of this year was 86.04%. In the metropolitan area, it was 86.27%, while in Seoul, it stood at 84.50%. The closer the jeonse deposit is to the sale price, the greater the burden of deposit recovery may become in the event of a price drop or landlord insolvency.
Indeed, there have been cases of undelivered deposits in the LH jeonse rental program. According to materials submitted to the National Assembly, there were 4,942 cases of undelivered deposits from 2019 to 2023, totaling 245.4 billion won. Of these, 1,952 cases, amounting to 76.3 billion won, had not been recovered as of August 2024.
However, some experts argue that the risk of jeonse fraud is not as significant in public contracts, as the public conducts direct rights analysis during the contracting phase. Lee Eun-hyung, a researcher at the Korea Construction Policy Institute, stated, “Since the public verifies contract-related documents during the jeonse fund support process, the risk of jeonse fraud in public rental schemes is likely to be low.”
The government plans to revise the jeonse rental operational guidelines in December to establish specific operational standards. With the support limit doubling, the potential losses the public may incur from misjudging appropriate prices could also increase. The key challenge for the new system will be how effectively it can filter the levels of deposit relative to market prices and rights relationships.
* This article has been translated by AI.
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