Introduction

South Korea’s jeonse system is a unique housing finance arrangement in which tenants provide a massive up-front deposit – often 50–80% of a property’s value – instead of paying monthly rent. In return, they live rent-free for the lease term (typically two years) and receive the full deposit back at contract’s end. Landlords, in turn, gain use of an interest-free loan which they can invest for profit. This unusual practice is widespread in Korea: historically, jeonse accounted for the majority of Seoul’s rental agreements (over 70% in some years), and even today nearly half of new leases in the capital follow the jeonse model. With an estimated ₩1,058 trillion (≈$800 billion) locked in jeonse deposits – about half of Korea’s GDP – the system’s economic ripples are enormous. This paper examines jeonse’s historical evolution, current market dynamics, macroeconomic impact, capital utilization, and future outlook, drawing on expert analyses and Korean-language sources.

1. Historical Background and Evolution

Origins and Legal Foundations

The jeonse system’s roots trace back over a century, with antecedents in Korea’s agrarian past. Some scholars argue that lump-sum lease arrangements existed as early as the Goryeo dynasty (10th–14th century), when farmers paid large advances for land use. Jeonse in its modern form began to take shape in the late 19th century. The opening of Korea’s ports under the 1876 Japan–Korea Treaty triggered rapid urban migration, creating surging demand for housing. Urban landlords started renting out rooms in exchange for hefty deposits – funds they would use as working capital for trade and business. This practice, informal at first, was codified when the term jeonse was formally defined in South Korea’s Civil Act of 1959, giving legal legitimacy to lump-sum rental contracts.

Rise and Rationale

Jeonse surged in popularity during the 1960s and 1970s, an era of housing shortages and rudimentary mortgage markets in South Korea. With few home financing options available, jeonse served as an ingenious workaround. Tenants without means to buy a home could at least secure housing ownership-like stability for a few years by furnishing a large deposit. Landlords, for their part, gained a 0% interest loan they could invest elsewhere. In an age of double-digit interest rates, this was highly lucrative – landlords could earn substantial returns by redeploying the deposit money, often outpacing what regular rent would yield. High interest also meant tenants’ opportunity cost for tying up cash was rewarded implicitly, as the foregone interest on their deposit was lower than equivalent rent in many cases. Economists of the time described jeonse as a “triple-win”: tenants obtained housing without ongoing payments, landlords received investable capital, and banks benefited indirectly as rising real estate values spurred demand for credit. As long as home prices kept climbing, all parties profited – tenants could often recover their deposit plus a premium upon renewal, and landlords’ leveraged investments paid off. By the late 20th century, jeonse had become deeply embedded in Korean housing culture and economics.

Legal Evolution and Tenant Protections

Initially, jeonse arrangements favored landlords, and tenant rights were insecure. A turning point came with the Housing Lease Protection Act of 1981, which the government enacted to safeguard tenants amid growing urbanization. This law gave renters priority claim to the deposit: if an owner failed to return the jeonse money, tenants could file a court order to establish a lien on the property and even remain in residence until repayment. In effect, jeonse deposits were given seniority against most claims, substantially reducing the risk of outright loss. Over time, additional measures strengthened tenant protection. In 2013, Korea introduced a Jeonse Deposit Insurance system, enabling renters to insure their lump-sum against landlord default. These policies reflected the growing recognition that jeonse, while beneficial, carried risks that needed mitigation in an increasingly complex property market.

Market Adjustments

Jeonse’s prevalence has waxed and waned with economic conditions. During periods of high interest rates and rapid inflation (e.g. the 1980s), jeonse thrived – landlords’ incentive to take big deposits was strong, and tenants saw jeonse as a hedge against runaway rents. In contrast, when interest rates declined in the 2000s, the relative attractiveness of jeonse diminished. Landlords began preferring monthly rent (wolse) or hybrid arrangements (banjeonse, a smaller deposit plus monthly rent) to secure steady income. By the 2010s, South Korea’s financial system had matured and mortgage credit became more available, yet jeonse remained common. In fact, a policy change in 2008 – raising bank lending limits for jeonse loans – fueled a resurgence of jeonse contracts by making it easier for tenants to borrow the large deposits. Thus, what started as a colonial-era improvisation evolved into a sophisticated, albeit peculiar, pillar of Korea’s housing market, continually adapting to the legal and financial landscape.

2. Current Trends and Market Dynamics

Scale and Prevalence

Jeonse remains a major force in Korean real estate, though its dominance is gradually receding. As of early 2024, roughly 47% of housing leases in Seoul were jeonse contracts – a record low share since statistics began in 2011. Just a few years prior, jeonse accounted for well over half of leases (around 60% in 2020), and a decade earlier it was the unquestioned norm, comprising up to 70% or more of rental agreements. This decline in share has been mirrored by an uptick in monthly rental (wolse) arrangements, now over 53% of Seoul leases. Nationally, similar trends hold, though jeonse is still deeply ingrained. The typical jeonse deposit today is staggeringly high in absolute terms: the median jeonse price stood at about ₩178 million (≈$150,000) in early 2023. In Seoul’s competitive market the figures are even more eye-watering – the average apartment requires around ₩680 million (over $500,000) upfront. Such sums, equivalent to decades’ worth of rent elsewhere, underscore both the financial burden jeonse places on tenants and the significant capital it funnels to landlords.

Jeonse Price Trends

In recent years, jeonse prices have seen wild swings, reflecting broader real estate cycles and policy shifts. From 2017 to 2021, South Korea’s housing market surged, and jeonse deposits climbed in tandem – rising 24% over four years. This spike accelerated in 2020–2021 after new tenant protection laws (described below) inadvertently constrained jeonse supply. In 2021 alone, average jeonse prices jumped 9.4%, the fastest annual increase in a decade. The boom was abruptly followed by a downturn. As interest rates began climbing and housing values cooled, jeonse rates fell: nationwide jeonse prices dropped ~7% in the two years to January 2023, alongside a 12% fall in home sale prices. The reversal has left some landlords struggling to attract equivalent new deposits and repay outgoing tenants, exposing cracks in the system. The recent trend suggests jeonse behaves cyclically – soaring in seller’s markets when buyers are priced out (thus boosting rental demand and deposit sizes), but softening when housing slumps or alternative rent options become more appealing.

Tenant–Landlord Dynamics

The relationships and bargaining power in jeonse contracts are in flux. Traditionally, jeonse was seen as mutually beneficial: tenants effectively “loaned” funds to landlords and paid no rent, so both sides gained if the arrangement held until term. However, a series of jeonse fraud cases and market disruptions have strained this trust. High-profile incidents of landlords failing to return deposits have rattled tenants, especially younger renters in cheaper dwellings. In 2022–23, hundreds of mostly working-class tenants in Seoul’s outskirts (often in low-cost multiplex units called villas) were unable to recover their lump sums due to landlord insolvency or scams. Police uncovered over 4,000 cases of jeonse scams in 2023, with losses exceeding ₩510 billion. These scams typically involved speculative landlords who used tenants’ money to buy multiple homes (a practice known as “gap investment”), only to default en masse when housing prices faltered. As a result, many tenants now insist on purchasing deposit insurance or avoid high-risk properties, while landlords face greater scrutiny of their creditworthiness. The tenant–landlord relationship in jeonse, once a relatively straightforward exchange, has become more complex and cautious amid these challenges.

Policy and Regulatory Environment

Government policy has had a pronounced impact on the jeonse market in recent years. In mid-2020, the Moon Jae-in administration passed sweeping lease reforms aimed at protecting renters from excessive hikes. Tenants won the right to extend leases for an additional two years and a cap was imposed limiting deposit (or rent) increases to 5% on renewal. While well-intentioned, these measures altered market dynamics: many landlords, fearing they couldn’t adjust prices later, withdrew jeonse offerings or raised initial deposits sharply, contributing to the 2021 price surge. Some owners switched to monthly rentals entirely, shrinking jeonse supply. The government also expanded support for tenants, for example by facilitating low-interest jeonse loans through public financial institutions and encouraging take-up of deposit guarantee insurance. More recently, policymakers have focused on jeonse fraud prevention and system overhaul. In 2023, after a spate of defaults, officials vowed tougher action – the Minister of Land even declared “the lifespan of the jeonse system has run its course,” pledging to reform it fundamentally. Proposed and implemented responses include stronger vetting of landlords, mandatory reporting of lease contracts, tax incentives for landlords who honor modest renewals, and relief programs for scam victims. Meanwhile, the market itself is correcting; rising interest rates have made alternative arrangements (like banjeonse or pure monthly rent) more attractive, and tenants are increasingly pragmatic rather than sentimental about jeonse. In summary, government interventions – from protection laws to anti-fraud measures – are reshaping jeonse, sometimes with unintended side effects, in an attempt to balance tenant welfare with housing market stability.

3. Macroeconomic Impact

Housing Affordability and Household Debt

The jeonse system has a dual-edged effect on housing affordability. On one hand, it offers tenants a way to live rent-free, which can be a boon for monthly cash-flow, enabling households to save or invest during the lease period. Indeed, many Koreans see jeonse as a forced savings plan: by recuperating the lump sum later, they effectively pay themselves rather than a landlord, often hoping to eventually use the money toward buying a home. On the other hand, the sheer size of deposits has made jeonse a significant barrier to housing access for those without substantial savings or family assistance. Younger Koreans and newlyweds frequently struggle to scrape together the deposit (averaging over half a million dollars in Seoul apartments) without parental help. This dynamic exacerbates wealth inequality, as those from less affluent families often must opt for costlier monthly rents or live farther from job centers. Moreover, because many tenants resort to bank loans to finance jeonse, the system has fueled soaring household debt. Uniquely, a large share of Korean household borrowing is not for purchasing homes, but for renting them. By 2014 it was observed that South Koreans “aren’t borrowing to buy houses; increasingly, they’re borrowing simply to rent them”. This trend has only intensified. The outstanding balance of jeonse-related loans jumped from ₩64 trillion in 2018 to ₩172 trillion in 2022, as banks eagerly extended credit to jeonse tenants. These loans now account for about 20% of all housing-related lending in Korea, contributing to the nation’s household debt-to-GDP ratio (around 100%+) being among the highest in the world. The heavy debt burden tied up in rental deposits dampens consumers’ ability to spend on other goods and can strain borrowers if interest rates rise. In short, jeonse has provided affordable housing in terms of monthly costs, but at the price of enormous upfront capital and debt obligations that weigh on household balance sheets.

Financial Markets and Banking Liquidity

The jeonse system deeply influences Korea’s financial flows and bank liquidity. When a jeonse contract is signed, money often moves from tenant to landlord via bank intermediation. Typically, a tenant withdraws savings or takes a loan, transferring a lump sum to the landlord. The landlord might then deposit that money in a bank, invest it, or use it to pay down their own mortgage. In many cases, jeonse essentially channels funds from tenants (or lending banks) into the broader financial system. If the landlord simply parks the funds in a savings account, banks gain liquidity which can be lent out elsewhere. If the landlord invests – whether in stocks, businesses, or purchasing additional properties – the jeonse capital becomes active in the economy, driving asset markets. During boom times, this process can amplify credit creation and asset inflation. For example, some landlords engage in “gap investment”: using one tenant’s deposit to finance another property purchase, which in turn is filled by another jeonse tenant, and so on. This pyramid of leverage injects liquidity into the real estate market, pushing prices upward. As one analysis noted, aggressive investors built “an incredibly dangerous and entirely unregulated financial ecosystem” by repeating this jeonse-leveraged buying spree. The consequence was that a single default could cascade, wiping out the life savings of numerous tenants and leaving banks with non-performing loans. From a banking perspective, jeonse loans are generally secured (often indirectly by guarantees or the housing collateral), and the system can seem stable as long as property values rise. However, in a downturn, banks may face a spike in credit risk if landlords default or tenants cannot repay loans after losing deposits. Furthermore, monetary policy is complicated by jeonse dynamics. The Bank of Korea must consider that lowering interest rates – normally done to stimulate spending – might instead fuel larger jeonse deposits and further real estate speculation, as cheaper credit encourages more borrowing for deposits. Conversely, raising interest rates, as occurred in 2022, can trigger tenants to demand their money back to invest in bank deposits, suddenly tightening liquidity for landlords and potentially forcing distress sales. In essence, jeonse acts as a large, informal credit market intertwined with the formal banking system, influencing liquidity conditions and financial stability in ways unique to Korea.

Consumer Spending and Investment Behavior

The prevalence of jeonse also subtly shapes consumer behavior and the broader economy. With so much personal wealth tied up in housing deposits, many Koreans have less disposable cash for consumption. This “lock-up” of savings can dampen domestic demand – a point noted by economists seeking to boost Korea’s chronically lukewarm consumer spending. Younger households saving frantically for a jeonse (or servicing a loan for one) might delay purchases of cars, vacations, or other big-ticket items. Some observers link high housing costs (including jeonse) to social trends like delayed marriage and low birth rates, as financial insecurity makes young people reluctant to form families. On the flip side, tenants living rent-free might feel less of a squeeze on monthly budgets, potentially freeing some income for other uses compared to if they paid rent. Once a jeonse contract ends and the lump sum is returned, it can even act as a windfall, enabling investment in a home or other ventures – a form of enforced saving that suddenly becomes liquid. Landlords, for their part, often channel deposit funds into investments. Many small-scale landlords in Korea are not professional real estate moguls but ordinary individuals who own an extra apartment or house. They might use jeonse money to augment retirement savings, dabble in the stock market, or fund a child’s education abroad. In aggregate, jeonse deposits represent a pool of capital that can be productive if invested wisely, or idle if simply left in bank accounts. There is ongoing debate over how effectively this capital is utilized. Some studies suggest a significant portion of jeonse funds end up as bank deposits earning modest interest, especially among risk-averse landlords, which does little for economic growth. Others argue the funds actively support credit creation and entrepreneurial activity when landlords reinvest in businesses or properties, contributing to growth. Regardless, jeonse undeniably influences how Koreans allocate their wealth – essentially shifting a large share of national savings into the housing sector. This contrasts with countries where renters would keep that money and possibly spend or invest it directly. Thus, jeonse has the macroeconomic effect of redistributing who controls capital (tenants vs. landlords) and altering consumption patterns, with complex net results on economic activity.

Global Comparison

From a global perspective, Korea’s jeonse is a rare breed. In most countries, rental deposits are a fraction of monthly rent, not a large percentage of property value. For instance, across much of Europe and North America, tenants typically provide a security deposit equal to 1–3 months’ rent – just enough to cover potential damages or last month’s rent. Paying hundreds of thousands of dollars up front to rent an apartment, as jeonse demands, is virtually unheard of in developed economies. Professor Kim Jin-yoo of Kyonggi University notes that South Korea is the only OECD country with a jeonse system, calling it a product of historical circumstance rather than modern financial necessity. Similar lump-sum lease arrangements exist only in a few developing markets, such as anticrético in Bolivia or girvi in India, where tenants provide a substantial deposit (though usually much lower than in Korea) to live rent-free for a period. Even these are niche practices. The scale and institutionalization of jeonse in Korea – supported by legal frameworks and banking products – have no true analogue elsewhere. This uniqueness has made Korea’s housing market less immediately comparable to global norms. It also means the economic impacts of jeonse, both positive and negative, are an idiosyncratic feature of Korea’s economy. International observers sometimes marvel that such a system thrives in one of Asia’s most advanced financial markets. Indeed, lump-sum rent schemes usually “exist in countries where the financial system has not yet been fully developed, but Korea is an exception” as Prof. Kim remarks. Korea’s experience thus provides a fascinating case study on how cultural and historical inertia can shape financial behavior even in the face of modernization. It also serves as a cautionary tale: benefits aside, the systemic risks Korea faces from jeonse (such as leveraged speculation and heightened household debt) are a reminder that financial innovations often carry hidden costs.

4. Analysis of Capital Utilization

Passive Savings vs. Active Investment

A critical question surrounding jeonse is how the vast deposits are used in the economy. Do these funds sit idly in bank accounts, or are they actively circulated and invested? The answer has significant implications for economic productivity and monetary policy.

In many jeonse arrangements, the deposit effectively moves from one bank account (the tenant’s or a lender’s) to another (the landlord’s). If a landlord simply holds the jeonse money in a bank deposit, it becomes part of the broader money supply and bank reserves. Banks can then lend a portion of these funds onward, meaning even “passive” deposits aren’t entirely static – they support credit indirectly. However, from the real economy’s perspective, money sitting in a savings account contributes little to immediate demand or investment. There is evidence that a considerable share of jeonse deposits are kept in low-risk, liquid forms (like savings accounts or certificates of deposit) by landlords who view the funds as an emergency reserve or future house-down-payment for their own family. Especially among older landlords or those with only one rental unit, risk appetite for investing the tenant’s money may be limited, leading to a passive parking of capital.

On the other hand, many landlords – particularly during boom periods – actively deploy jeonse capital. The classic landlord approach is to use the lump-sum deposit to pay off existing mortgages on the rental property. In doing so, jeonse funds essentially cycle back to banks (lenders) by reducing housing debt. This deleveraging can strengthen an owner’s balance sheet and potentially free them to borrow for other purposes. Alternatively, landlords may use the cash to invest in financial markets. The real estate investors often treat jeonse as a form of leverage to expand their property portfolio: as described earlier, they may acquire additional homes using jeonse deposits as down payments (the gap investment strategy). Some portion of jeonse money likely flows into stock markets, startups, or small businesses as well, especially when market conditions make real estate less attractive. In periods of low interest rates, for example, enterprising landlords might seek higher returns in equities or corporate bonds, thus injecting jeonse-derived liquidity into capital markets. There have even been instances of jeonse funds fueling speculative bubbles – anecdotal reports suggest that during the mid-2010s stock rally, a number of landlords invested tenant deposits into equities, contributing to volatility. While hard data on the allocation of jeonse deposits is scarce (landlords are not required to disclose how they use the money), the consensus is that a significant portion is actively invested or utilized, rather than stashed under mattresses. The very premise of jeonse encourages active use: since landlords owe tenants the full sum later, they are incentivized to earn a return on it in the interim (to compensate for inflation or opportunity cost). This often means anything from earning bank interest to funding new loans, property developments, or consumption. Thus, jeonse funds do participate in economic activity, albeit in the hands of landlords rather than tenants.

Role in Financial Markets and Liquidity

The aggregate pool of jeonse deposits – on the order of one quadrillion won – represents a substantial source of liquidity in Korea’s financial system. When interest rates and economic conditions are stable, this pool functions almost like an unofficial banking system: tenants “loan” money to landlords, who then either re-lend it (via banks) or invest it. However, unlike formal bank loans, these private arrangements lack regulatory oversight on use of funds. During the housing boom of the late 2010s and 2020–21, jeonse capital flooded into real estate speculation. By providing the equity for countless leveraged purchases, jeonse deposits contributed to inflated property valuations and construction activity, boosting short-term GDP growth (through construction investment and related consumption) but also raising the risk of a sharp correction. Once the market turned, that same capital became problematic: it was tied up in illiquid assets (homes that were now depreciating), and landlords struggled to free up cash to refund tenants. The government and Bank of Korea have had to intervene at times by urging banks to extend bridging loans to landlords facing jeonse refund shortfalls, effectively backstopping liquidity when the private flow of funds seizes up. In this sense, jeonse funds are usually productive when moving into markets, but can become dangerously illiquid and inert during downturns, requiring policy attention.

Implications for Monetary Policy

The existence of jeonse alters the transmission of monetary policy in Korea. In a typical economy, lowering interest rates encourages borrowing and spending; in Korea, lower rates also tend to raise housing prices and jeonse deposits (since cheaper credit lets tenants bid up deposit amounts and landlords earn less from keeping cash in the bank). Conversely, higher interest rates not only increase borrowing costs, but can prompt an exodus from jeonse: tenants may prefer to get their deposit back and simply earn interest, while landlords find fewer people willing or able to stump up large deposits. This happened in 2022–2023, when rate hikes led many tenants to switch to monthly rent or smaller deposits, putting a squeeze on jeonse landlords. For the central bank, this means rate changes can have outsized effects on the housing market and financial stability via the jeonse channel. An increase in rates can trigger a wave of deposit withdrawals from the real estate sector into the banking sector (as tenants exit jeonse), which is the opposite of the usual concern (money flowing out of banks). Likewise, cutting rates to stimulate the economy might inadvertently re-inflate a housing bubble by making jeonse more attractive again. Policymakers must thus carefully calibrate measures, sometimes resorting to macroprudential tools (like loan-to-value limits or caps on jeonse loan growth) to manage this unique form of liquidity. Ultimately, jeonse deposits are not idle piles of cash; they are a dynamic reservoir of capital that flows through Korea’s economy, magnifying booms and busts, and challenging conventional monetary policy effects.

5. Future Outlook and Policy Recommendations

Risks and Challenges

The recent tumult in the jeonse market has spotlighted the systemic risks of this aging system. One major concern is the default risk and ensuing social fallout when housing markets decline. As seen in the villa scam cases and the notorious “gap investment” collapses, a downturn can leave thousands of tenants unable to reclaim their life savings. Jeonse inherently concentrates risk: each landlord may hold billions of won in obligations to tenants, effectively acting as an unregulated financial institution. If too many landlords become overleveraged – using successive tenants’ deposits to fund multiple property purchases – the system starts to resemble a pyramid scheme, reliant on ever-rising prices to sustain itself. In a cooling market, the pyramid can crumble, with young and economically vulnerable renters hit hardest when deposits evaporate. This is not a hypothetical risk; it has been manifesting in Korea’s weaker housing segments, prompting questions about jeonse’s viability. Another looming challenge is demographic and generational change. South Korea’s population is aging and overall population growth has stalled. Younger generations, saddled with high youth unemployment and lower income growth, may be both less able and less willing to participate in jeonse. Many now opt for monthly rentals despite the higher long-run cost, simply to avoid massive debt. As more households shrink in size or remain single, the appetite for tying up capital in a two-year housing contract may diminish. There is also a cultural shift: owning a home outright has become such a strong aspiration (partly in reaction to high rents and jeonse hurdles) that those who can scrape together funds increasingly prefer to buy smaller units or invest elsewhere rather than park cash in a landlord’s account. If demand for jeonse contracts dwindles over time, the market could undergo a secular contraction, leaving the system relevant only for certain niches or higher-end homes.

Outlook

In the near term, jeonse will likely continue its gradual decline in favor of monthly rent arrangements, especially if interest rates remain elevated. Landlords are finding that charging modest rent (or a hybrid rent+deposit) can be safer than managing huge deposits under volatile conditions. The government’s ongoing anti-fraud measures and potential reforms may also reduce the appeal of jeonse for speculative landlords, thereby reducing supply. However, jeonse is unlikely to disappear overnight. It is deeply woven into Korea’s housing fabric and still serves a purpose for many middle-class families who prefer a lump-sum commitment over monthly outflows. In times of very low interest (should they return), jeonse could even see a resurgence, as both sides of the market find the trade-off attractive (tenants avoiding “wasted” rent, landlords betting on eventual price gains). Over the longer term, much will depend on housing supply and affordability. If Korea succeeds in expanding affordable housing – through new construction, urban redevelopment, or public housing schemes – the pressure that drove ordinary people into complex arrangements like jeonse might ease. Conversely, if home ownership remains out of reach for many, jeonse or something like it will persist as a second-best option to bridge the gap.

Policy Recommendations

To address the downsides of the jeonse system while preserving its advantages, a multi-pronged policy approach is advisable:

• Strengthen Protections and Transparency: The government should mandate greater financial transparency of landlords entering jeonse contracts. For instance, requiring disclosure of any existing mortgages or liens on the property (and making this easily accessible to prospective tenants) would reduce information asymmetry and fraud. Expanding the availability and awareness of jeonse deposit insurance is also crucial – perhaps even making basic coverage automatic – so that tenants are safeguarded without having to opt in. Enforcement of the Housing Lease Protection Act must remain robust, ensuring that tenants can swiftly place liens or freeze assets if foul play is suspected.
• Promote Alternative Housing Models: To gradually wean the market off high-risk jeonse dependence, Korea can incentivize long-term rental models managed by professional institutions. Encouraging development of build-to-rent apartments by corporations or REITs (real estate investment trusts) could provide more monthly-rental stock with reliable contracts, offering tenants stability without large deposits. Rent-to-own schemes could also be expanded – where a portion of one’s monthly rent accrues as equity – giving tenants a sense of investment without a lump sum. These alternatives can coexist with jeonse but provide attractive options, especially for younger renters, thereby reducing the all-or-nothing nature of the current system.
• Adjust Financial and Tax Incentives: Policymakers might recalibrate the incentives that have favored jeonse. For example, phasing out or capping tax benefits that landlords receive from jeonse income (currently, jeonse “income” is not taxed as rental income would be) could level the playing field between choosing jeonse versus monthly leases. Simultaneously, offering tax breaks or subsidies for landlords who convert jeonse contracts into monthly rentals (or lower deposit formats) can nudge the market toward safer arrangements. The government’s recent move to give capital gains tax benefits to landlords keeping rent hikes low is one such measure; further incentives could include reduced property taxes for long-term rental commitments or public lending programs for landlords to return jeonse deposits when converting to monthly schemes.
• Mitigate Household Debt Exposure: Since jeonse-related borrowing is a large component of household debt, financial regulators should continue to monitor and tighten credit standards for jeonse loans as needed. Ensuring that banks assess borrowers’ ability to repay even if housing markets fluctuate is key to avoiding a debt bubble. In addition, expanding affordable public lending programs or housing funds for lower-income tenants could reduce reliance on private debt. By capping interest rates or providing income-based repayment plans for jeonse loans, the burden on households can be alleviated, indirectly supporting consumer confidence and spending.
• Gradual Systemic Transition: Any major changes to jeonse must be managed gradually to avoid market shocks. A sudden abolition is neither feasible nor desirable – it would disrupt millions of existing contracts and could trigger a liquidity crisis. Instead, a gradual transition plan over, say, a decade could be charted. This might involve steadily lowering the legal maximum deposit relative to property value (if one were imposed) or increasing the jeonse-to-wolse conversion rate guidelines so that more landlords opt to charge some rent instead of a full deposit. The aim would be a soft landing where jeonse naturally shrinks to a minor part of the housing ecosystem, used only where it makes clear sense for both parties, rather than the dominant default.

In conclusion, South Korea’s jeonse system – born of historical necessity and once celebrated as a clever economic solution – now stands at a crossroads. Its economic impact has been far-reaching: fueling housing booms, contributing to household debt, shaping financial flows, and influencing social behavior. Yet its vulnerabilities have been exposed by recent market tremors and generational shifts. The coming years will determine whether jeonse can be reformed into a safer, more sustainable model or whether it will gradually give way to new forms of housing finance. As one Korean official put it, the goal is to “fix the system without fail” – a recognition that while jeonse served its era admirably, the time has come to evolve. By implementing thoughtful reforms and providing alternatives, Korea can alleviate the risks of jeonse while retaining what has always been its core promise: making housing accessible to those who cannot (or choose not to) buy, and doing so in a way that balances the interests of tenants, landlords, and the economy at large.

Sources