A new program that lets tenants entrust their jeonse (a Korean lease system requiring a large lump-sum deposit instead of monthly rent) deposits to a public agency while landlords receive monthly payouts will debut late this month. Commitments have already topped 1 trillion won ($720 million) ahead of the launch, and the government is also pushing to cut rental income tax to single digits to ease the burden on landlords. The question is whether the program can restore confidence in the non-apartment rental market, battered by jeonse fraud, and pull a housing market that has shifted toward monthly rent back toward jeonse.
The Korea Housing & Urban Guaranty Corporation (HUG) said on the 21st that it will launch a jeonse and monthly rent stabilization body on the 22nd and issue a public notice late this month to recruit landlords and tenants for the safe trust program. Choi In-ho, president of HUG, said earlier that commitments to the safe trust business are estimated to have topped 1 trillion won, including units from the Korea Land & Housing Corporation's purchased rental housing and asset management companies, with a potential 2 trillion to 3 trillion won secured. HUG has set an annual target of 15 trillion won in jeonse deposits held in trust, which it estimates would have the effect of supplying about 93,000 homes.
The new stabilization body is a dedicated unit that will directly manage jeonse deposits, playing a role similar to that of the National Pension Service's fund management arm. The plan is to use lease deposits as a funding source for housing supply, easing cash shortages at small and mid-sized builders and, over the medium to long term, expanding public rental housing. Jeonse price verification and agreements will proceed from November, with balance payments held in escrow and move-ins starting in January next year. A housing supply revitalization fund is targeted for establishment and registration in February next year.
HUG says the safe trust benefits both landlords and tenants. In a case presented by HUG, converting a villa (a low-rise multi-unit home, distinct from a luxury villa) rented for 740,000 won a month with a 10 million won deposit into a 200 million won jeonse would require the tenant to put up 40 million won of their own money plus a 160 million won loan. Assuming an annual interest rate of 3.97%, monthly interest would come to about 530,000 won. The tenant's own funds rise by 30 million won, but monthly housing costs fall by more than 200,000 won and the tenant also saves on deposit guarantee fees.
The landlord, applying a 4.35% annual return, would receive 725,000 won a month before tax. That is similar to the existing monthly rent but carries no risk of late payment, and income is guaranteed for up to two months even when the unit is vacant. Registered rental business operators can cut their lease deposit guarantee fees. A plan to apply a single-digit tax rate to rental income is also being pursued.
Eligibility initially covers homes valued at up to 2 billion won, with no restrictions on housing type, income or assets. Homes with a mortgage lien, as well as monthly rent and semi-jeonse arrangements, can also take part, but the entire deposit must be entrusted. Participation is voluntary, and tenants retain their right to request a lease renewal.
HUG is reviewing an expansion of loan guarantees to ease the funding burden on rental operators that entrust deposits to the safe trust. Operators previously used deposits for construction costs or home purchases, but once the money is in trust they cannot spend it directly. The idea is to raise the mortgage guarantee cap, now about 60% of appraised value, to 70% to 75% so operators can borrow additional funds.
The risk of principal losses would be reduced by drawing on HUG guarantees. Cho Han-jun, head of HUG's safe trust planning office, said the structure works so that if the fund starts out as HUG-guaranteed loans, HUG takes responsibility for any principal losses on those loans.
Also under consideration is raising cash upfront against future rental income. Under that approach, up to four years of monthly rent would be turned into bonds and sold to investors. If 10,000 households generate 300 billion won in rent over four years, that could be used to raise funds and shore up operators' liquidity. For landlords without spare cash, HUG is also weighing support for funds to repay departing jeonse tenants, on the condition that they join the jeonse trust. Choi said some ask whether this runs counter to the policy of managing the total volume of household lending, but argued that entrusting jeonse deposits to HUG cannot be seen as gap investment — buying a home while a tenant's jeonse deposit covers most of the price. He added that HUG is in talks with financial authorities on whether such loans can be exempted from household lending volume controls.
Tenants will be offered low-rate jeonse loans for use when moving into homes enrolled in the safe trust. Talks with the five major commercial banks on launching the products are largely complete, with final terms such as interest rates still being worked out. The aim is to lift participation in the safe trust by lowering both the landlord's funding burden and the tenant's loan interest.
Choi stressed that the safe trust will serve a "3S" role — a safe jeonse that lowers housing costs for tenants without fear of jeonse fraud, a stable monthly rent for landlords without worries about late payment, and supply of housing to stabilize the housing market.
