Korean Real Estate - What is the Jeonse System?

Jeonse System

What is the Jeonse System in Korea?

 

The Jeonse system in Korea is a unique form of housing arrangement that is rarely seen in other countries. It is a type of lease agreement where the tenant deposits a large sum of money with the landlord and lives in the property rent-free for a certain period. When the lease ends, the deposit is returned to the tenant.

 

Typically, Jeonse contracts are for a two-year term. At the end of the two years, the tenant has the right to request a renewal of the contract for another two years. Unless the landlord has a valid reason to refuse, the contract is automatically renewed, providing tenants with long-term housing stability.

 

Concept of the Jeonse

 

 

Key Features of Jeonse

• Deposit:

- In a Jeonse contract, the tenant pays a significant amount of deposit to the landlord. This deposit typically ranges from 50% to 80% of the property's market value, depending on the region and type of housing.

- At the end of the lease term, the deposit is refunded to the tenant.

 

• Rent:

- Unlike monthly rent, Jeonse does not involve paying rent every month. Instead, the tenant sacrifices the interest earnings on the deposit and lives rent-free in the property.

- The landlord earns interest income by depositing the Jeonse deposit in a financial institution or investing it.

 

• Lease Term:

- Jeonse contracts are usually for two years.

- Before the lease expires, the tenant can request to renew the contract, and unless the landlord has a valid reason to refuse, the contract is automatically renewed.

 

• Contract Renewal:

-The tenant can request a contract renewal between six months and one month before the lease expires.

-The landlord must have a valid reason to refuse renewal; otherwise, the tenant has the right to renew the lease.

 

 

Advantages of Jeonse

Cost Savings:

 

- There is no monthly rent, making it economical in the long run.

 

- The tenant receives the deposit back, reducing the overall housing cost burden.

 

 

Stability:

 

- There is no concern about rent increases during the lease term.

 

- Long-term lease agreements provide a stable living environment.

 

 

Disadvantages of Jeonse

Large Initial Cost:

 

- A significant amount of money is required for the deposit.

 

- It is difficult for people who cannot afford the deposit to access this system.

 

Deposit Return Risk:

 

- There can be legal disputes if the landlord does not return the deposit.

 

- Tenants can protect their deposit by subscribing to Jeonse deposit insurance, but this incurs additional costs.

 

Uncertainty After Lease Expiration:

 

- There can be uncertainty about whether the lease will be renewed or when the deposit will be returned after the contract ends.

 

- If the landlord cannot return the deposit, it may be difficult for the tenant to find a new Jeonse property.

 

Comparison of the Jeonse and the Monthly Rent