Jeonse is different from monthly rent, that is type of a lease common in Korean real estate market. There are many types of fraud that are very gullible. When you look for a house in Korea, you should pay more attention to it.
Let's look at the Korea Housing Lease (Jeonse) and some types of fraud.
CAUTION!!
It deals with real estate contracts! You have to read it carefully!
What is the Jeonse?
Jeonse is one of the most common housing lease contracts in Korea. It refers to a person who rents a house on the condition that the tenant deposits the lease money to the lessor, and then receives 100% of the lease money back at the end of the contract period. It is differentiated from monthly rent in that it does not pay monthly rent separately. In general, Jeonse deposits are set in proportion to the amount of housing sales, so they differ in character from general deposits. For reference, monthly rent sets a deposit, and the amount is usually about 1 to 6 months of monthly rent. The Korean lease system is generally referred to as "Jeonse" without separate translation in English.
If tenants make good use of Jeonse, the burden of money will be reduced.
Jeonse is a substitute for monthly rent, and from the tenant's point of view, it is judged to be advantageous over monthly rent, where fixed costs are spent. Due to Jeonse, rental costs for residential areas in Korea, especially in the metropolitan area, are much cheaper than in other countries with similar population density and economic level, but it is realistic that monthly rent will rise as Jeonse decreases in the future.
The ratio of housing rent to income in Korea is very low compared to developed countries. In the case of monthly rent, when looking for a house in the center of the metropolitan area, monthly rent can be obtained at approximately 1/4 to 1/6 of income, and the price is much cheaper outside the metropolitan area, so monthly rent can be obtained at 1/10 of income. In the case of the United States and Japan, monthly rent can be obtained only by paying 1/2 to 1/3 of income in the metropolitan area. However, Jeonse is cheaper than the monthly rent. In addition, there is a concept that mixes the concepts of Jeonse and monthly rent in half, which refers to a form of renting a house through about half of the general lease amount and half of the monthly rent.
How do I sign the contract?
It is a system in which consumers are exempted from the obligation to pay monthly rent to landlords by lending large sums of money to homeowners without interest during the contract period, and landlords can raise large amounts of money without interest in return for real estate.
Simply put, the tenant lends the money to the landlord at no interest, and the tenant enters the house for a certain period of time instead. Making interest on debt and monthly rent (building fee) zero. It is a mutual bond and debt relationship due to the temporary exchange of cash and spot.
The landlord makes profits by properly rolling the money, and after Jeonse period, only the principal is returned to the consumer and the proceeds are the landlord. The proceeds from the investment of the lease on a deposit basis will be replaced by monthly rent.
Most foreigners who have not experienced high interest rates and the real estate craze in Korea look at Jeonse system and say, "Why do you go back to find money when you live on top of other people's houses?" and "Why lend your house for free?"I was astonished to say, Foreigners often pay the full amount of monthly rent in advance with monthly rent at the time of lease contracts. However, since the 21st century, foreigners have often understood Jeonse system and sought the lease.
Jeonse deposit was paid in a lump sum, but it was possible to live in a high-quality residential environment at a lower cost than when purchasing a house, and it functioned in a form of lease that was cheaper than monthly rent. Jeonse deposit functioned as a savings system for better housing and life in a series of stages leading to future employment, marriage, and promotion. There were many people who moved to a slightly more expensive lease house a few times by adding the money they saved after living on lease for several years and eventually bought their own house. Jeonse system was established as a universal lease system in Korea as the interests of landlords and tenants matched.
In the case of Jeonse system, monthly rent expenditure is "0" and the lease money returns intact after the contract is over, so it seems that there is little loss for tenants. In particular, if interest rates are low, there is no opportunity cost except for inflation (=denial of currency). However, it is not a loss for a landlord to pay a lease when interest rates are low. If you borrow money from a bank for home purchases, even if it is in the 1% range, you have to pay interest in the 3-4% range in addition to credit spreads, so Jeonse is clearly better in terms of opportunity costs. On top of that, products with an inverse correlation coefficient with interest rates, such as real assets, are usually slow in the era of high-interest rates and high in the era of low-interest rates, but they may benefit from investing in real assets in the era of low-interest rates.
Well-known pattern of fraud
1. On the day of the contract, you will be relieved by showing a clean copy of the register without a loan. However, after signing the contract, they secretly change their names. The name of the proxy nominee wanted somewhere is entered in place of a copy of the register. When it is difficult to change it secretly, they make excuses such as taxes and real residence problems.
2. Nominees are mainly homeless and other people with no financial ability. It is tempting to deduct 10-20% of the lease deposit as a commission. If you don't even want to pay this fee, you can use a copy and seal to change your name by deceiving people who are intellectually disabled or low-income people like voice phishing.
3. When the lease expires, only the nominees remains, and the original landlord only takes the deposit and disappears.
4. In the case of new construction, the principal pretends to be the landlord himself and establishes a proxy name. In the case of construction, it approaches the existing landlord by saying that it will sell the house at an expensive price. Instead, they ask them to see their agents in their names or collect fees pretending to be an intermediary consulting firm that sells their homes at high prices.
Fraud type I
Way of impersonating a landlord
The most common case is when the person who actually received the lease payment is not the landlord, and you may wonder if he should actually use such a bold method, but by precedent, it is a long-standing method that has not been eradicated for more than 40 years, so you need to doubt it first. In this case, since the landlord is no longer a party to the contract, only the tenant is subject to dumping. In addition, licensed real estate agents must be involved in this fraud, so ordinary people are greatly affected. When contracting a lease, the registration must always be removed from the relevant government office to clearly check the owner of the house, and whether the contracting parties are each other. Many people are scammed because this process is surprisingly omitted. It looks complicated, but if you go to the relevant government office, you can explain it accurately, and you can easily find a way on the Internet, so make sure to check it.
In addition, a double contract similar to the above method. It is a method in which a licensed real estate agent makes a lease contract to a tenant and a monthly lease contract to a landlord and steals the lease. It is a fraud once so popular that it appears on TV media that it reassures tenants by paying part of the rent to the landlord. From the landlord's point of view, the monthly rent is coming in, so he did not doubt much, but after knowing that the monthly rent began to be pushed back from a few days, he notifies the tenant of this fact and the tenant also notices the fraud. Or, in some cases, a lease contract is made by forging a power of attorney.
Occasionally, a copy of the register is shown, but it is possible that the copy of the register was forged or may have been printed before establishing a mortgage, so you must directly print a copy of the register and check it. In addition, if a trust company is involved, the trust ledger must be checked. In addition, when the landlord requests to view the unpaid national tax before the contract because there are cases where the landlord is in arrears, but the landlord's consent is required when reading, so if the request for reading is rejected, the lease contract needs to be improved.
In the 2010s, fraud using fake ID cards was also detected. It is to forge an ID card with the information of the landlord received in the process of the monthly lease contract, pretend to be the landlord, and sign a lease on a deposit basis. More than 100 households have been affected by the fraud. However, the suspects have already used up the 4 billion won they received from the lease, so there is no way to be compensated.
Another fraud was detected, and this time, each role is subdivided into a corporate fraud organization, divided into a monthly drug manager, an ID card forgery, a landlord, and an intermediary role, and moves according to the mastermind's instructions. In addition to counterfeiting identification cards, they also use bankbooks issued by banks with forged identification cards (of course, photos of criminals are pasted on their identification cards), so those who check meticulously are forced to do the same.
Fraud type II
This is the case where the landlord flies away with the lease money
It's not so common, but there are so many things in life. This is not something that can be done personally, so it is important to understand the situation of the owner's house to some extent in life. For legal remedies (such as applying for a "payment order" against the landlord), tens of millions of won will just evaporate once they fly away with the money. In this case, if the house is auctioned, the tenant is naturally a creditor. However, the dividend ranking only varies depending on the legal status.
If you live on a lease loan, the problem becomes even more serious, because if you do not repay the loan paid with the lease deposit at the end of the lease contract, the tenant will become a credit delinquent in an instant. Aside from adding surcharges to interest and lowering credit ratings, Hellgate will be held immediately because the bank's collection agency calls frequently.
In general, if you are a small tenant protected by the Housing Lease Protection Act, you should share the highest priority with other general creditors and tenants with priority repayment rights under the Housing Lease Protection Act. Related provisions If the landlord goes bankrupt in a situation where tenants are in poor conditions, tenants who are unable to pay their debts (because they have not received their lease back) may go bankrupt with the landlord.
Fraud type III
Conflict between tenant and landlord due to the condition of the house
Since Jeonse is a concept of renting a house, legal disputes can arise if it is severe due to damage to the house. Of course, disputes often arise due to damage to the house due to the lack of understanding of tenants.
For example, nailing into a wall. Since it is an act of damaging the building, it can be deducted from the deposit. The problem is that you can dump damage that is not the cause. Therefore, before moving in, it is better to take a picture of the wall carefully and consult with the landlord. In a case where the borrower and the tenant sign and keep together a certificate that can be submitted as evidence of the condition of the house in the event of a legal dispute over the house in the future. Notarization using lawyers is also possible, but unless it's really in the hundreds of millions of wons...
This problem can be quite sensitive, so if it's not your home, never drive a nail, and if possible, use a wall mount that melts and attaches with fire. It's important that if you remove it and paint it again, it won't damage the house. Whether the owner does the plating or the tenant does it depends on the region. In areas where the lease supply is higher than the demand, the owner sometimes plastered, but in areas where the lease demand is higher than the supply, tenants often do it and enter. In the Seoul metropolitan area, if you check with real estate, you will be informed that the monthly rent is usually done by the owner and the tenant.
Don't drive a nail in a nutshell. If you really want to see a wall-mounted TV, or if you have to hang something heavy enough to nail it, you can use furniture to hang a wall-mounted TV, or at least ask the owner in advance. The reason for referring to nailing is that there are the most disputes caused by this. In fact, many people think, "It's just a nail in the head," but it's not. This is because when a hole is made in the wall, it adversely affects the strength of the concrete wall, causing unexpectedly large damage to the building. Nowadays, more and more people know that nailing without permission is not allowed, but it is still the number one element in the most disputes. It should always be remembered that in the first place, the lease is to rent another person's house.
Tip for Jeonse I
This is the most certainly a way to protect the lease payments.
SGI Seoul Guarantee Co., Ltd.
Rental Deposit Guarantee Credit Insurance: 0.192-0.218% per annum
Houses and apartments worth less than 1 billion won have no restrictions on lease payments.
Housing & Urban Guarantee Corporation
guarantee of return of lease deposit 0.128~0.154% per annum
700 million or less in the metropolitan area and 500 million won or less in the local area.
If the lease is not returned for 30 days after the end of the lease period, or if the lease is transferred to an auction, the lease can be received as insurance money. Of course, be careful because you can only receive insurance money up to the amount covered by the insurance money.
It is also a disadvantage that you cannot join if more than half of the contract period has passed. So if you're going to get a guarantee insurance, it's better to listen to it quickly instead of being absent-minded. However, if the contract is invalid from the beginning, it may not be returned.
Tip for Jeonse II
When you suddenly had to leave the house,
Let's let them know first. Jeonse money is a lot of money for landlords, too. It doesn't matter if you go out after completing the contract, but if you go out on the period, the landlord will also incur unexpected large expenses. In this case, if the tenant pays the penalty, the tenant becomes A. This is because the return of the lease deposit is legally guaranteed. On the contrary, the landlord of B is in a hurry.
If you are a tenant, let me know at least a month or two weeks in advance. This is because only after this period, the landlord can use methods such as repaying the original lease with the lease money received by contracting with another lease tenant. Unexpected hundreds of millions of won is a huge amount of money that is very difficult to finance. In many cases, landlords have to take out quite a large amount of short-term loans to deduct chartered cars if there are tenants who leave after deducting penalties.
It is before the contract expires, so you have to find a new tenant and move. At this time, it is customary for the authorized brokerage fee to be paid by the person who suddenly leaves the lease. There is no legal obligation for tenants to pay for brokerage fees just because they move without meeting the contract period, but directors mean termination of the contract before the expiration of the lease contract, and an agreement must be reached between the parties. Otherwise, the return of the lease deposit could be disrupted. If the lease contract period has not expired, the landlord is also not legally obligated to return the deposit until the end of the contract period. In addition, tenants cannot file a lawsuit for the return of lease deposits before the expiration of the contract period. On the day of moving, there may be a mishap in which the lease deposit cannot be returned. In the end, it is best to consult well with the landlord in the end if the tenant wants to cancel the lease contract and get the deposit back. Therefore, it has become a practice for tenants to pay brokerage fees that landlords have to pay as a condition of agreeing to a director before the contract expires. Conversely, if the lease contract expires normally, the brokerage fee must be borne by the landlord.
Tip for Jeonse III
When the house is broken?
There are times when a house breaks down in life. General lease transactions protected by the Lease Protection Act have the same obligation to maintain normal repairs as monthly rent transactions. On the other hand, in the case of registration of a real right to lease, all repair obligations are given to tenants. Even in the case of damage caused by natural disasters such as floods or landslides, tenants are obligated to repair them.
If it is an apartment within five years of its construction, it is slightly different, and the apartment construction company will be responsible for the defects for a certain period of time. The deadline is usually five years. These apartments have an A/S office installed in the apartment, so it is not the tenant's fault, but if the house is damaged, you can contact the A/S office for repair. Of course, you have to get permission from the landlord before that, but few landlords refuse to accept the construction company's free repair. There are many landlords who simply contact the A/S office and delegate it to the tenant to get it repaired.
The reason why Jeonse survived in Korea
Jeonse was originally established based on high interest rates during the period when housing finance was insufficient during the Korean development dictatorship in the 20th century. Until the 1970s, Korea's savings rate was about 12 percent and bank loans were about 20 percent. As such high interest rates have settled, landlords have settled down, savings or investment in banks, and tenants live at home.
However, things changed in the 21st century. Since the financial crisis, housing finance has developed, with the emergence of long-term mortgage loans, and deposit rates have fallen to the 0% to 1% range with low global interest rates, and the era of 2% at the highest lending rate has arrived. Nevertheless, Jeonse is still a common type of lease transaction in Korea.
Fundamentally, the lease on a deposit basis is private finance. It is a loan in which landlords raise cash as collateral for real estate through contracts between signatures without using institutional financial companies such as banks or secondary financial institutions. Since this is private finance, the interest rate raised by landlords to tenants is higher than that of institutional financial companies. The landlord does not borrow money for nothing. The landlord borrows money from the tenant through private finance called lease and gives the tenant the lease in return. In other words, the landlord is paying interest equivalent to the monthly rent of the house to the tenant in return for raising cash by lease. The conversion ratio between lease and monthly rent in the market varies from region to region, but it is about 6% per year in October 2020. If we do not agree on this point, all discussions on lease will inevitably be disrupted.
Jeonse system with clear advantages and disadvantages
Jeonse system, which is a lease contract and a type of private finance, took root in Korea because its advantages were so clear. In countries where there is no lease, it is common to live on monthly rent and use Mortgage, a long-term loan, to raise one's own house loan. Although it is nominally his own house, he has to pay principal and interest every month, so it is not much different from living in a rental house, except that the capital gains return to him. Given that many Americans lost their homes during the 2008 subprime crisis, capital gains are not guaranteed.
In terms of housing costs, jeonse is also advantageous compared to monthly rent. As of June this year, the Korea Appraisal Board's monthly rent conversion rate was 5.0 percent in Seoul (5.9 percent nationwide), and if this is applied, it will have to pay 420,000 won (5 million won per year) per month to convert 100 million won into monthly rent. The market loan interest rate is around 2.5%, so if you borrow 100 million won in lease deposits, you can pay 210,000 won per month, half the price. Even if you raise a lease deposit with your own money, the opportunity cost of giving up is less than 200,000 won because the interest rate of banks in the market is only 1 to 2%. In any case, housing costs for jeonse are less than half of the monthly rent. On the contrary, landlords prefer monthly rent in the era of low-interest rates because it is more advantageous to transfer monthly rent than to receive jeonse deposits and put them in banks.
This does not mean that the lease system has only advantages. The most fatal problem is the risk of not returning the deposit. Risk can be removed through the fixed date system and guarantee insurance, but there is a blind spot. For example, if the sale price falls below the lease price, even if you received a fixed date, it will be impossible to get the entire lease back if you do not have guarantee insurance.
Recently, it is often pointed out that Jeonse is the cause of real estate speculation. If the gap between sales and lease prices is small, gap investment in pursuing rental income and capital gains can become active by buying several houses with a small amount of money.
Similar cases around the world
Jeonse is known as a system that exists only in Korea, but there are more similar systems in several countries. Bolivia has a system called Antiquretico, and India has a system called girvi and bogey. In its 2003 report, the UN-HABITAT sees these systems as "a form of contract that entrusts deposits and lives without monthly rent." There are more countries that are confirmed by law, so they are not only in Korea, but also in France and Spain, and in Louisiana, the United States. Argentina and Bolivia, which were influenced by Spain, also appear to have a lease system.
However, most of them seem to be private regulations, and only Korea is widely appearing in the form of general contracts throughout the country, and other than that, it is only a small percentage of less than 5% in Bolivia. In other words, it is not a common form of contract in Bolivia.
Sweden also has a similar system called Bostadsrat (meaning a leasehold) in some cooperative-type houses, but unlike the lease system in Korea and Bolivia, it is an investment in cooperatives and can live indefinitely without a fixed lease period.
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