ROK Drop

Avatar of GI KoreaBy on September 16th, 2013 at 7:20 am

How to Stop the Korean Housing Bubble

If you are thinking of buying or leasing an apartment in Korea I highly recommend reading this article from a ROK Drop favorite Tom Coyner in the Joong Ang Ulbo:

It will soon be that dreaded time again for me – the renegotiation of my apartment lease. Thankfully, it happens just once every two years, but it is a real pain. The silver lining to this biannual cloud is that it forces me to look more closely at the Korean housing market, an important factor in most economic considerations.

At first brush, Korean real estate is as loopy as any foreigner may surmise about anything in the Korean economy.

First of all, there is a glut of slow-moving, unoccupied apartments – and yet prices remain artificially high. This is partially due to the universal axiom that real estate prices rise much faster than they fall. People naturally welcome seeing investment values inflate and resist recognizing shrinking values.

Second, housing costs are kept high, in spite of the vast supply of housing, due to a practice called jeonse, the non-interest-bearing, fully refundable deposit paid to the landlord in lieu of rent. Conventional rental properties can also be found, but most Korean tenants prefer jeonse as part of their strategy to eventually save enough money to buy.

During times of higher interest rates, jeonse was roughly 50 percent of the market value of the property. The landlord would then use the deposit for investment, or at least put the money in the bank, and enjoy the return. But thanks to very low interest rates, traditional jeonse levels have become increasingly unpopular among landlords. As a result, there have been two important developments. [Joong Ang Ilbo]

You can read the rest at the link.

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  • tbonetylr
    3:05 pm on September 16th, 2013 1

    “It will soon be that dreaded time again for me – the renegotiation of my apartment lease. Thankfully, it happens just once every two years, but it is a real pain.”

    He failed to garner any sympathy from me since he said nothing about negotiating his lease. If it’s such a pain why didn’t he talk about it?

  • Smokes
    4:51 pm on September 16th, 2013 2

    It won’t be soon for me for a while but when the not-so-dreaded time comes for me to have to redo my lease I won’t care in the slightest. Here 부동삿, take up to my max if you want, I don’t care because it’s not my money, the government doesn’t trust me to manage fianances so take it all, I don’t even care if you’re pulling shennaningans. Go spend it on hookers.

    LQA: Designed to prevent you from screwing the system, allowing the system to screw everyone.

  • Leon LaPorte
    4:59 pm on September 16th, 2013 3

    2. That’s true. If the government wanted to institute a program to actually save money, it would be easy. If the individual can get a house for less than the PUBLISHED LQA rate, the government and individual split the difference. Everybody wins, except the foreign landlord…

  • Smokes
    7:17 pm on September 16th, 2013 4

    Leon why would the government need to take time to figure out ways to save money? You’re making it sound like we’re in danger of running short on cash or something. By the way, rumor mill says 22 furlough days for next fiscal year.

  • Bob
    4:01 am on September 17th, 2013 5

    I’ve seen dump apartments try to rent to soldiers for way more than it was worth. When I inspected it, I told the landlord to fix X number of things before it was ready to live in. He got mad and said “The last soldier…”

    Anyway, I encouraged the soldier to go to another place that cost a little more because his pregnant wife was flying into Korea in a couple of days.

    Korea’s going to get the max, may as well find a nice place to enjoy it in. Of course in the states, you can live in a ghetto and pocket the difference- your choice, but here isn’t the states.

    Myself, I’ve bought a place and enjoy saving the money. I’m one of the few who have a wife that’s Korean and still has citizenship, so we were lucky in that respect.

  • Bob
    4:02 am on September 17th, 2013 6

    I should say “dump apartment landlords”. My correction.

  • Jeff
    7:53 pm on September 17th, 2013 7

    Bob,
    Now that I look back on it, allowing my wife to forgo her Korean citizenship was a mistake. I can’t imagine how hard it would be to try to buy an apartment now….

 

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