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In Seoul, “1 Million Won Monthly Rent” Has Become Commonplace – The Asia Business Daily

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In Seoul, "1 Million Won Monthly Rent" Has Become Commonplace - The Asia Business Daily

Last month, the median monthly rent for homes in Seoul surpassed 1 million won. The psychological threshold of “1 million won” for high rents is no longer limited to highly sought-after areas or newly built apartments; it has now become a common sight in many neighborhoods.

Monthly rents are rising in tandem with the surging sale prices observed over the past year. Several factors have contributed to this trend: an environment where it has become more difficult to buy a home due to real estate measures has increased rental demand; there is a growing tendency to avoid Jeonse leases due to concerns about fraud; and landlords are seeking to benefit from monthly rents in a low interest rate environment. As monthly rents, which generally place a heavier financial burden on tenants compared to Jeonse, continue to rise, concerns are mounting over housing instability for tenant households.

According to the nationwide housing price trend survey released by the Korea Real Estate Board on January 15, the median monthly rent in Seoul was recorded at 1,007,000 won in December of last year. In November, the median rent was 995,000 won. The median monthly rent for homes in non-metropolitan areas was about half that of Seoul, at 506,000 won.

The median value represents the middle value when all surveyed prices are arranged in order. This is the first time since the board began compiling statistics that the median monthly rent for homes in Seoul has exceeded 1 million won. The average monthly rent surpassed 1 million won four years ago (1,052,000 won in July 2021).

The average can be distorted by a small number of extremely high or low samples. In contrast, the median is less affected by outliers and is a more suitable indicator of the typical situation. This means that for an average family renting in Seoul, it is now common to spend 1 million won per month on housing costs.

While monthly rents in Seoul had been rising gradually, the pace accelerated significantly in the second half of last year. According to the Korea Real Estate Board, the integrated monthly rent price index rose by 3.27% over the past year, with a 1.57% increase occurring just between October and December. An analysis of transaction data from the Ministry of Land, Infrastructure and Transport shows that last month there were 3,860 monthly rent transactions in Seoul at or above 1 million won, nearly three times higher than the same period ten years ago (1,304 cases in December 2015). The proportion of monthly rent contracts priced at or above 1 million won also increased from 26% to 39% of all monthly rent contracts.

The reasons for rising monthly rents are complex. First, the trend of “monthly rent replacing Jeonse,” which had slowed for a while, has resumed. The aftermath of “Kangtong Jeonse” (Jeonse scams) and fraud, which were particularly prevalent in non-apartment properties such as villas and officetels, continues to drive tenants away from Jeonse leases. As a result, despite the higher costs, tenants are increasingly opting for the perceived safety of monthly rent contracts.

The surge in Jeonse prices is another factor. In the case of newly built apartments in popular areas of Seoul, Jeonse deposits now exceed the price of several apartments in non-metropolitan areas. Many tenants take out loans for Jeonse deposits, but more people now feel that paying monthly rent to the landlord is not much different from repaying interest on a Jeonse loan. The government’s tightening of mortgage and Jeonse loan regulations as part of household debt management has also made it harder to secure large sums of money.

Additionally, as the asset markets for stocks and cryptocurrencies have become more active, more people are choosing to invest their capital rather than lock it up in a home purchase or Jeonse deposit. The low interest rate environment has also led many landlords to prefer receiving monthly rental income.

Park Wongap, Senior Real Estate Research Fellow at KB Kookmin Bank, said, “Monthly and Jeonse prices are inevitably linked to sale prices, and since apartment sale prices in Seoul surged last year, rents were bound to rise with a time lag. The two rental law reforms (the right to renew contracts and the cap on rent increases) have also accelerated the shift to monthly rent and affected prices.”

High monthly rents are now frequently seen not only in Seoul’s most expensive districts, such as Gangnam’s three districts, Yongsan District, and areas near the Han River, but also in less traditionally sought-after neighborhoods. On January 13, a 59-square-meter unit in Sanggye Jugong Complex 7 in Nowon District, which is nearly 40 years old, was rented for a deposit of 50 million won and a monthly rent of 1 million won. In areas such as Sanggye-dong and Junggye-dong, older apartment complexes are known to command relatively high monthly rents due to strong short-term demand from families seeking proximity to private academies. Similarly, a 70-square-meter unit in Sindonga Apartment in Banghak-dong, Dobong District, was recently leased for a deposit of 50 million won and a monthly rent of 1.1 million won.

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