The shift from jeonse (a lump-sum deposit lease) to monthly rent in Seoul's apartment market is spreading from the smallest units to mid-sized ones. Monthly-rent contracts accounted for 44.8% of transactions for Seoul apartments larger than 60 square meters and up to 85 square meters in the first nine months of this year, up 9.9 percentage points from the same period a year earlier, according to the Ministry of Land, Infrastructure and Transport's actual transaction price disclosure system on the 25th. That increase is more than double the 4.7 percentage point rise seen in the smallest apartments of 40 square meters or less. The change follows a tightening of various property rules, which has deepened a lock-in effect on jeonse listings and accelerated the move to monthly rent.
Even so, Land Minister Hong Ji-sun said on the 21st that "the shift from jeonse to monthly rent is not something that suddenly appeared recently but a structural change driven by factors such as the rise in single-person households." Demographic change has indeed played a part. But it falls short of explaining why the share of monthly-rent contracts for mid-sized apartments — the units multi-person households mainly look for — has climbed by nearly 10 percentage points in a single year. Hong has also pointed to a drop in new homes ready for occupancy, caused by weak construction starts, as the main driver of rising jeonse and monthly rents. On top of that, lending rules have made it harder for tenants to raise deposit money, and stricter owner-occupancy requirements have cut the supply of listings.
Against this backdrop, the government's push to raise the comprehensive real estate holding tax risks adding to the strain in the rental market. The revision bill submitted to the National Assembly would unify tax rates based on housing value while raising the rate for the bracket above 600 million won and up to 1.2 billion won to 1.3% from 1.0% starting in 2028, among other changes. The National Assembly's Finance and Economic Planning Committee warned in a recent report that "raising the holding tax rate could shift the tax burden onto tenants in the form of higher rents." The point that a higher holding tax could lead to rising jeonse and monthly rents rather than stabilizing home prices should not be taken lightly.
The government's aim of improving fairness in taxation is understandable. But if the holding tax burden is passed on to tenants, it will worsen housing insecurity for low- and middle-income households. The average monthly rent for a Seoul apartment stood at 1.661 million won in September, up 218,000 won from a year earlier, according to the Korea Real Estate Board. Higher housing costs leave households with less room to spend, which ultimately weighs on a recovery in domestic demand. The government has withdrawn plans to narrow the holding tax deduction for owners of a single home who do not live in it and to raise the cap on tax increases, but that alone is not enough. During the National Assembly's deliberations, lawmakers should fully examine the side effects of the rate increase and reconsider both its size and its timing.