The amount that the Housing and Urban Guarantee Corporation (HUG) must pay on behalf of landlords unable to return security deposits reached nearly 4.5 trillion won last year, setting a record high.
According to HUG on the 16th, the total amount of security deposit return guarantee accidents last year was 4.4896 trillion won, with 20,941 reported cases. This is an increase of 154.9 billion won (3.6%) compared to the previous year's 4.3347 trillion won.
The scale of guarantee accidents surged from 579 billion won in 2021 and 1.1726 trillion won in 2022 to over 4 trillion won starting in 2023. This situation arose as the expiration of lease contracts established around the peak housing and rental prices in 2021 occurred, leading to a decline in rental prices, which resulted in many landlords who had invested in villas being unable to return security deposits.
As the lease contracts established prior to the surge in real estate prices gradually end, the monthly scale of security deposit return guarantee accidents is on a downward trend. It decreased from 349.6 billion won in August last year to 306.4 billion won in September, 291.3 billion won in October, and 229.8 billion won in November. The amount for December was 230.9 billion won.
HUG expects a noticeable decrease in security deposit accident amounts beginning this year. The lease contracts expiring in the first half of this year are from the first half of 2023 when rental prices began to decline. Additionally, as the ratio of security deposits to dwelling prices has been adjusted from 100% to 90% since May 2023, filtering out untenable leases, this could lead to a reduction in guarantee accidents.
Seventy-seven percent of the security deposit accidents that occurred in 2023 arose from dwellings with a debt ratio between 90% and 100%. The debt ratio is calculated by dividing the total of the mortgage amounts and security deposits by the dwelling prices.
The amount paid by HUG to tenants who suffered security deposit accidents last year (subrogation amount) reached 3.9948 trillion won, also the highest ever. This is an increase of 440.3 billion won (12.4%) compared to the previous year's 3.5545 trillion won.
It takes up to 2 to 3 years to recover the money paid by HUG on behalf of landlords, and any amounts not received in the meantime become losses. As security deposit accidents surged, HUG’s operating losses reached 3.9962 trillion won in 2023, and this year's losses are also expected to be around 4 trillion won.
To provide various guarantees for lease, rental, sales, real estate project financing, and housing construction, the government must increase HUG's capital, which has been reduced due to operating losses.
The amount invested by the government in HUG has reached 5.4739 trillion won over four years starting in 2021. Investments in the Housing and Urban Guarantee Corporation amounted to 390 billion won in 2021, 384.9 billion won in 2023, and 700 billion won last year. In the previous year, stock worth 4 trillion won from the Korea Expressway Corporation was also contributed in kind.
The Housing and Urban Fund is established through the sale of housing bonds that are acquired through subscriptions made for housing savings, building regulations, and real estate ownership transfers. This money, akin to tax funds, is being used to cover losses. HUG also issued bonds worth 700 billion won (newly issued capital securities) last November to increase its capital.
The government has stated that it will increase HUG's capital to provide over 30 trillion won in public guarantees aimed at supplying liquidity to the real estate and construction markets this year.