Navigating the rental market in South Korea requires understanding two key terms and their concepts: "Wolse" and "jeonse."
Wolse, which means monthly rent, is self-explanatory: Tenants pay a deposit and the monthly rent to live in the residence. But the deposit is usually much higher than most other countries, conventionally equal to or more than 10-months' rent.
A quick scope of the Cheongpa-dong area near Seoul Station showed that a studio of 22 square-meters cost 500,000 won ($385) a month to rent, but has a deposit equivalent to 10 months of rent. Another studio apartment in Joongrim-dong was offered at 1.2 million won a month, with a deposit of 10 million won -- a little more than eight months worth of rent.
South Korean law does not stipulate what the initial deposit-to-rent ratio should be. Instead, it is decided via the agreement of both parties.
Jeonse, on the other hand, allows a tenant to rent a home without having to make monthly payments to the landlord.
The catch is that the tenant needs to pay a lump sum at the start of the lease contract, which is conventionally around 60-70 percent of the market value of property. From the homeowner’s standpoint, the jeonse system is essentially an interest-free loan.
Because the two systems have such contrasting merits and drawbacks, there is a middle ground -- ban-jseonse (semi-jeonse). It basically involves a higher than usual deposit and cheaper monthly rent.
Ban-jeonse, jeonse and wolse are inter-convertible, and the level of deposits and rents is determined via a “jeon-wolse conversion rate,” stipulated in the Housing Lease Protection Act. By using this rate, one can find out how much extra rent should be paid by the tenant in lieu of a deposit.
The conversion rate is tied to the benchmark borrowing rate of South Korea, set by the Bank of Korea, with a premium determined by presidential decree.
As of the final week of April, the base rate stands at 3.5 percent, so the conversion rate is 5.5 percent. The calculated monthly rent for a home whose jeonse deposit amount is 100 million won, is the deposit multiplied by the conversion rate (5.5 percent) and divided by 12. So the 100 million won in jeonse deposit is equivalent to a monthly rent of 458,330 won.
A deposit-to-monthly rent calculator can be found on various Korean search engines.
Survive & Thrive is a series offering a guide to living in South Korea for those born outside of the country. – Ed.
