The demand for monthly rent on officetel (the dual-purpose building used for commercial and residential purposes) is on the rise with the growing concerns over the recent spate of “jeonse” frauds centered on villas and other non-apartments. The housing burden on single-person households is escalating with the growing monthly rents.
Jeonse refers to a unique Korean system in which tenants give landlords a very large refundable deposit for rent-free occupancy for a fixed period. According to the industry, there has been an increasing number of one-person households switching from long-term jeonse contracts to monthly rentals due to the growing concern about unreturned deposits from jeonse fraud and the burden of loan interest with high-interest rates.
In the data released by the Real Estate Board, the monthly rental price index for officetel last December was 103.07, up 0.5% from the previous month. This is the highest monthly index in the past year. Meanwhile, the sales price index and jeonse price index dropped by 0.22% and 0.14,% respectively.
The conversion rate of officetel deposit-to-monthly lease, which refers to the interest rate applied when lump-sum deposits are converted into monthly rent, was also on the rise. The conversion rate rose by 0.41 percentage points (p) from 5.56% in January last year to 5.97% in December of the same year.
Monthly rentals for officetel have also become active. According to a price open system by the Ministry of Land, Infrastructure and Transport, 34 contracts were monthly rentals for officetel last December, an increase of 13 from the same period two years ago.
In the online community for workers, workers express frustration. “Monthly rental housings near workplaces easily go over $753 (1 million won).” “I looked for places near the college campus thinking they would be cheaper, but they are not so different.” The monthly rental fees of officetels at Sinchon, a famous college campus area, now stand at around $602 (800,000 won).
“Housings in Sinchon always had some demands but there has been an increase recently,” said an agent from a real estate near Sinchon Station in Seoul said, adding, “Monthly rents overall have increased by 10 to 15 percent compared to three to four years ago.” “College students and their parents used to ask for a studio room in the $376 - $451 (500,000-600,000 won) range, but they know that the monthly rents have gone up. They are now looking for rooms in the $527 - $602 (700,000-800,000 won) range.”
“Workers looking for housing in Sinchon usually work near Gwanghwamun and City Hall, areas relatively close to Sinchon,” said another real estate agent. “But these days, workers from Yeouido and even Gangnam look for rents here. They don’t even consider living close to their workplaces because the rent is just too expensive.”
Pundits are concerned that the strong rental market will continue for some time. “The monthly rentals for non-apartments have increased mainly around new contracts, and conversion of jeonse to monthly rentals has also increased slightly,” said an official from Real Estate R114 said. “The trend of preferring monthly rentals will continue as ‘jeon risks’ such as tin-can jeonse (the property value falls below the jeonse deposit) centered on non-apartments will not abate in the near future.”
