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South Korea's 'jeonse' rent-free renters hit by property downturn

World

21-02-2023 | 08:37

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South Korea's 'jeonse' rent-free renters hit by property downturn

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A downturn in South Korea's home prices is causing pain in the country's unusual rent-free rental system that benefited landlords and tenants alike during a long surge in residential property prices.

In the "jeonse" scheme, tenants put up a deposit typically worth as much as 70% of the home's value, then live without paying rent for two years until the landlord returns the full amount.

This was a win-win for residents and owners for years as home prices rose and interest rates were high: the loan tenants paid to raise their deposit was cheaper than rent and landlords got an interest-free loan to deploy as they pleased.

Jeonse tenancy has been particularly popular among people in their 20s and 30s, who could not afford the full price of a home but could use the system to get a toehold into the Korean dream of home ownership.

But median house prices have fallen 12% and jeonse prices 7% over the two years to January after surging 37% and 24%, respectively, over the preceding four years, according to Korea Real Estate Board data.

REUTERS

South Korea

Renters

Property

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