Housing rent loan extended to young Koreans doubles in 4 years

The total loan extended to Koreans in their 20s and 30s to pay their “jeonse” rents more than doubled since President Moon Jae-in took office in 2017, data showed Thursday, reflecting the reality of young people ditching hopes to buy homes, and rent instead.

Jeonse is a rental system where the tenant hands over a large lump sum to the landlord -- on average, about 65 percent of the value of the property – for usually two years and does not pay rent. The deposit is returned to the tenant at the end of the contract.

The outstanding jeonse loan extended by five major commercial banks here to borrowers in their 20s increased nearly six-fold to 24.3 trillion won ($20.7 billion) as of end-June, compared with the same month in 2017, watchdog Financial Supervisory Service data submitted to a lawmaker here showed. The gain is nearly double the amount other age ranges gained in the cited period.

The value of jeonse loan extended to those in their 30s more than doubled to 63.6 trillion won or 38.8 trillion won to 63.6 trillion won in the same period. The value stood at 24.7 trillion won in June 2017.

The combined value of jeonse loan extended to Koreans in their 20s and 30s in the last four years amounted to some 59 trillion won. This accounts for 61.5 percent of the total jeonse loan extended to borrowers of all ages, which came to 148.5 trillion won as of end-June. The figure stood at 52.8 trillion won in June 2017.

The data reflects the massive hurdles the Koreans in their 20s and 30s face when purchasing a house in the nation’s heated real estate market. The tragedy is that those in their 30s have high desire to become homeowners.

According to the Korea Real Estate Board, in the first half of the year, 28.4 percent of apartments purchased in Gyeonggi Province were bought by those in their 30s, while the corresponding figure in Seoul came to 36.5 percent.

The average price of an apartment unit measuring 82.4 square meters jumped around 80 percent from 660 million won in 2017 to 1.19 billion won in 2020, according to civic group Citizens’ Coalition for Economic Justice. The organization analyzed 63,000 apartments in 22 apartment complexes in Seoul.

“The gap between those who settled for jeonse loans and actual homeowners -- both in their 20s and 30s - is getting wider,” Rep. Kim Sang-hoon of People Power Party said.

“If the authorities and the financial institutions continue to restrict access to jeonse loans, the 20s and 30s would only suffer further,” he added.

On top of it, Korea has been facing jeonse shortage, with homeowners cautious of signing jeonse contracts in the first place, preferring monthly rents, as the Moon administration’s series of tenant protection laws have taken effect. The bills allow the tenants’ jeonse contracts to be automatically extended once and stops homeowners from raising jeonse more than 5 percent at the time of automatic renewal.

The average jeonse price in Gangnam-gu, an affluent and well-known area in Seoul, has jumped 58 percent since the beginning of the Moon administration in May 2017, data compiled and released by real estate data platform 10,000-lab showed earlier this month. The average jeonse price for apartments in the area jumped by some 58 percent to 40.2 million won per 3.3 square meters as of August, compared with 25.3 million won in May 2017, according to the same data.

The data comes as commercial lenders have been temporarily suspending their lending of mortgage, jeonse and other similar home-related loans, pressured by the authorities’ push to put a brake on the nation’s snowballing household debt. The Bank of Korea ended its 15-month record-low interest rate by hiking the rate by 25 basis points to 0.75, in a bid to contribute to the effort.

Meanwhile, the employment rate for Koreans in the age range of 15 to 29 came to 42.2 percent, 14.6 percentage points below the average employment rate for the age range in the US, UK, Germany, Japan and France as of end-2020, the report released Thursday by the Korea Economic Research Institute showed. It was also below the Organization for Economic Cooperation and Development’s average of 50.8 percent.

The number of Koreans in the cited age range who “gave up on job seeking,” increased by 18.3 percent from end-2015 to end-2020 to 219,000.

By Jung Min-kyung (mkjung@heraldcorp.com)