The Korea Housing Builders Association proposed a reasonable overhaul of the "HUG-recognized appraisal system" applied when signing up for lease deposit guarantees. It argued that, while the appraisal system has been tightened to prevent jeonse fraud, even legitimate private construction rental operators are being forced to shoulder an excessive burden.
The association said on the 22nd that it had formally proposed improvements to the "HUG-recognized appraisal system" to the Ministry of Land, Infrastructure and Transport and the Korea Housing & Urban Guarantee Corporation (HUG).
The Ministry of Land, Infrastructure and Transport (MOLIT) and HUG, to prevent jeonse fraud, have tightened screening standards for lease deposit return guarantees since 2023 by restricting the application of appraisal values and lowering the loan-to-value ratio based on dwellings prices. In 2024, HUG introduced a recognized appraisal system at the time of guarantee enrollment, assigning five appraisal institutions it selected to conduct preliminary and main appraisals. The aim was to prevent excessive setting of deposits and enhance trust in appraisals.
The association said that, due to this system, appraisal values for dwellings have been underestimated, making it difficult for private construction rental operators to obtain guarantees.
The association said, "Since October 2024, the method of HUG directly commissioning appraisals has been applied first to mortgage guarantees and publicly supported private rentals, and cases of underestimation to about 20–30% of previous levels have occurred frequently," adding, "The same problem became full-fledged in lease deposit guarantee enrollment after June last year."
The association added, "Although laws and regulations recognize 'market prices,' such as KB price indices and the Korea Real Estate Board (REB) Real Estate Tech prices, actual appraisals are limited to appraisals for collateral acquisition (about 80% of market prices), fueling controversy over undervaluation."
The association complained that private construction rental dwellings establish a business structure that assumes long-term rentals of at least 10 years at the initial leasing stage, and if appraisal amounts fall sharply, rental operators face an unbearable burden to return large lease deposits.
The association said, "Normal rental operations are becoming difficult, increasing the likelihood of a chain of failures, including rental operators' black-ink bankruptcies, disputes over tenants' deposits and housing insecurity, and growing fiscal burdens due to increased subrogation by HUG," adding, "Such concerns are actually becoming a reality as some mid-sized construction companies file for court receivership."
The association requested that the purpose of HUG-recognized appraisals for lease deposit guarantees, currently applied as general transaction (reflecting market prices) rather than for collateral acquisition until the end of June this year, be changed to general transaction without a time limit. Fundamentally, it proposed revising the Enforcement Decree of the Private Rental Housing Act to improve the method from HUG's direct commissioning to a third-party recommendation and commissioning through the association of appraisers.
The association said, "We agree with and support the policy goal of preventing jeonse fraud, but applying excessive standards even to the sound construction rental market creates greater side effects," adding, "Reasonable improvements aligned with the system's intent are urgent to stabilize the rental market and maintain the basis for supplying dwellings."